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

Particulars	Father	Sam	Debit	Credit	Interest	Totals
Revenues	(1,360,000)	(540,000)				(1,900,000)
Cost of goods sold	700,000	385,000				1,085,000
Depreciation expense	260,000	10,000		(E)2,500		267,500
Amortization expense	-0-	5,000	(E)     5,000			10,000
Interest expense	44,000	5,000	(E)     1,250			50,250
Equity in income of Sam	(105,000)	-0-	(I) 105,000			-0-
Separate company net income	(461,000)	(135,000)
Consolidated net income						(487,250)
Noncontrolling interest in Sam's income					(26,250)	26,250
Controlling interest in CNI						(461,000)
Retained earnings 1/1	(1,265,000)	(440,000)	(S) 440,000			(1,265,000)
Net income (above)	(461,000)	(135,000)				(461,000)
Dividends paid	260,000	65,000		(D)   52,000	13,000	260,000
Retained earnings 12/31	(1,466,000)	(510,000)				(1,466,000)
Current assets	965,000	528,000				1,493,000
Investment in Sam	733,000		(D)   52,000	(S) 480,000
					(I) 105,000
					(A) 200,000	-0-
Land	292,000	60,000	(A) 165,000			517,000
Buildings and equipment (net)	877,000	265,000	(E)     2,500	(A)   25,000		1,119,500
Copyright	-0-	95,000	(A) 100,000	(E)     5,000		190,000
Total assets	2,867,000	948,000				3,319,500
Accounts payable	(191,000)	(148,000)				(339,000)
Notes payable	(460,000)	(130,000)	(A) 10,000	(E)     1,250		(581,250)
NCI in Sam 1/1				(S) 120,000
NCI in Sam 12/31				(A) 50,000	(170,000)
					(183,250)	(183,250)
Common stock	(300,000)	(100,000)	(S) 100,000			(300,000)
Additional paid-in capital	(450,000)	(60,000)	(S)   60,000			(450,000)
Retained earnings 12/31	(1,466,000)	(510,000)				(1,466,000)
Total liab. and stockholders' equity	(2,867,000)	(948,000)				(3,319,500)