Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $680,000 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $850,000 although Sierra’s book value was only $600,000. 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	$	60,000			$	225,000
Buildings and equipment (10-year remaining life)		275,000				250,000
Copyright (20-year remaining life)		100,000				200,000
Notes payable (due in 8 years)		(130,000	)			(120,000	)

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, 2021, for both companies.

Padre				Sierra
Revenues	$	(1,360,000	)		$	(540,000	)
Cost of goods sold		700,000				385,000
Depreciation expense		260,000				10,000
Amortization expense		0				5,000
Interest expense		44,000				5,000
Equity in income of Sierra		(105,000	)			0
Net income	$	(461,000	)		$	(135,000	)
Retained earnings, 1/1/21	$	(1,265,000	)		$	(440,000	)
Net income		(461,000	)			(135,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/21	$	(1,466,000	)		$	(510,000	)
Current assets	$	965,000			$	528,000
Investment in Sierra		733,000				0
Land		292,000				60,000
Buildings and equipment (net)		877,000				265,000
Copyright		0				95,000
Total assets	$	2,867,000			$	948,000
Accounts payable	$	(191,000	)		$	(148,000	)
Notes payable		(460,000	)			(130,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,466,000	)			(510,000	)
Total liabilities and equities	$	(2,867,000	)		$	(948,000	)

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

Prepare a worksheet to consolidate the financial statements of 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. Input all amounts as positive values.)

Answer 1

Satatement of profit and loss account

Particulars	Padre	Sierra	Particulars	Padra	Sierra
Cost of good sold	700000	385000	Revenue	1360000	540000
Depriciation	260000	10000	Amortation	0	5000
Interest expenses	44000	5000	Interest	0	600000
Net profit	356000	745000
	13,60,000	11,45,000		13,60,000	11,45,000

Balance sheet (Consolidate)

Liabilities	Amount	Assets	Amount
Equity Sh capital	33,26,500	Land	352000
Account payable	339000	Investment	733000
Note payable	590000	Building	1142000
Other liability	69500	Less:Dep	(270000)
		Copy Right	195000
		Stock	680000
		Current Assets	1493000
	4325000		4325000

Equity Workings-Padre

Capital	105000
Net profit	365000
Net Income(461000+461000)/2	461000
Retain Earnings(1265000+1466000)/2	1365500
Less Divident	(260000)
	2036500

Net Income and Retain Earnings have opining and Closing (ie Opening + Closing)/2

Equity Sierra

Capital	0
Net profit	745000
Net Income	135000
Retain Earnings(440000+510000)/2	475000
Less Divident	(65000)
	1290000