Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $771,840 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $964,800 although Sierra’s book value was only $609,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:

	Book Value				Fair Value
Land	$	68,400			$	300,400
Buildings and equipment (10-year remaining life)		322,000				293,000
Copyright (20-year remaining life)		125,000				263,000
Notes payable (due in 8 years)		(182,000	)			(167,200	)

For internal reporting purposes, Padre, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2018, for both companies.

	Padre				Sierra
Revenues	$	(1,490,980	)		$	(645,950	)
Cost of goods sold		766,000				443,000
Depreciation expense		325,000				18,500
Amortization expense		0				6,250
Interest expense		49,700				5,200
Equity in income of Sierra		(133,720	)			0
Net income	$	(484,000	)		$	(173,000	)
Retained earnings, 1/1/18	$	(1,390,000	)		$	(449,000	)
Net income		(484,000	)			(173,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,614,000	)		$	(557,000	)
Current assets	$	989,440			$	600,350
Investment in Sierra		853,560				0
Land		345,000				68,400
Buildings and equipment (net)		969,000				303,500
Copyright		0				118,750
Total assets	$	3,157,000			$	1,091,000
Accounts payable	$	(276,000	)		$	(192,000	)
Notes payable		(517,000	)			(182,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,614,000	)			(557,000	)
Total liabilities and equities	$	(3,157,000	)		$	(1,091,000	)

At year-end, there were no intra-entity receivables or payables.

Using the acquisition method, prepare the worksheet to consolidate these two companies. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

Answer 1

Particulars	padre	sierra	debit	credit	noncontrolling interest	consolidated totals
revenues	(1,490,980)	(645,950)				-2,136,930
cost of goods sold	766,000	443,000				1,209,000
depreicaiton expense	325,000	18,500		2900		340,600
amortization expense	0	6250	6900			13,150
interest expense	49,700	5,200	1850			56,750
equity income in sierra	(133,720)		133,720
sepreate company net income	(484,000)	(173,000)
consolidated net income						-517,430
NI to noncontrolling interest					-33,430	33,430
NI to Padre company						-484,000
retained earnings 1/1	(1,390,000)	(449,000)	449,000			-1,390,000
net income	(484,000)	(173,000)
dividends declared	260,000	65,000		52,000	13,000	260,000
retained earnings 12/31	(1,614,000)	(557,000)				-1,614,000
current assets	989,440	600,350				1,589,790
investment in sierra	853,650	0	52000	905,650		0
land	345,000	68,400	232,000			645400
builiding and equipment	969,000	303,500	2,900	2,900		1,272,500
copyright	0	118,750	138,000	6,900		249,850
total assets	3,157,090	1,091,000				3,757,540
accounts payable	(276,000)	(192,000)				-468,000
notes payable	(517,000)	(182,000)	14,800	1850		-686,050
NCI in sierra 12/31					-1,303,510	1,303,510
common stock	(300,000)	(100,000)	100,000			-300,000
additional paid in capital	(450,000)	(60,000)	60,000			-450,000
retained earnings 12/31	(3,157,000)	(1,091,000)				-3,157,000
total liab. and stockholders' equity						-3,757,540