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Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1,...

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $760,960 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $951,200 although Sierra’s book value was only $619,000. 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 $ 67,400 $ 290,400
Buildings and equipment (10-year remaining life) 335,000 299,000
Copyright (20-year remaining life) 197,000 323,000
Notes payable (due in 8 years) (165,000 ) (145,800 )

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 $ (1,465,280 ) $ (636,600 )
Cost of goods sold 788,000 417,000
Depreciation expense 308,000 13,000
Amortization expense 0 9,850
Interest expense 50,200 6,750
Equity in income of Sierra (147,920 ) 0
Net income $ (467,000 ) $ (190,000 )
Retained earnings, 1/1/21 $ (1,402,500 ) $ (459,000 )
Net income (467,000 ) (190,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/21 $ (1,609,500 ) $ (584,000 )
Current assets $ 939,620 $ 494,450
Investment in Sierra 856,880 0
Land 309,000 67,400
Buildings and equipment (net) 976,000 322,000
Copyright 0 187,150
Total assets $ 3,081,500 $ 1,071,000
Accounts payable $ (200,000 ) $ (162,000 )
Notes payable (522,000 ) (165,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,609,500 ) (584,000 )
Total liabilities and equities $ (3,081,500 ) $ (1,071,000 )

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.)

Solutions

Expert Solution

PADRE INC. and SIEERA CORPORATION

Consolidated worksheet

For the year ending December 31, 2021

Consolidated entries

Padre

Sierra

Debit

Credit

Noncontrolling interest

Consolidated totals

revenues

(1465280)

(636600)

-2101880

cost of goods sold

788000

417000

1205000

depreciation expense

308000

13000

3600

317400

amortization expense

0

9850

6300

16150

interest expense

50200

6750

2400

59350

equity income in sierra

(147920)

0

147920

0

sepreate company net income

(467000)

(190000)

consolidated net income

(503980)

NI to noncontrolling interest

(36980)

36980

NI to Padre company

(467000)

retained earnings 1/1

(1402500)

(459000)

459000

(1402500)

net income

(467000)

(190000)

(467000)

dividends declared

260000

65000

52000

13000

260000

retained earnings 12/31

(1609500)

(584000)

(1609500)

current assets

939620

494450

1434070

investment in sierra

856880

52000

908880

0

land

309000

67400

223000

599400

building and equipment

976000

322000

3600

36000

1265600

copyright

0

187150

126000

6300

306850

total assets

3081500

1071000

3605920

accounts payable

(200000)

(162000)

(362000)

notes payable

(522000)

(165000)

19200

2400

(670200)

NCI in sierra 1/1

190240

(190240)

NCI in sierra 12/31

(241220)

(214220)

common stock

(300000)

(100000)

100000

(300000)

additional paid in capital

(450000)

(60000)

60000

(450000)

retained earnings 12/31

(1609500)

(584000)

(1609500)

total liab. And stockholders' equity

(3081500)

(1071000)

1199420

1199420

(3605920)

(299000-335000)/10 =-3600

(323000-197000)/20 =6300

(165000-145800)/8 = 2400

65000*20% =13000

65000*80% = 52000

290400-67400 = 223000

335000-299000=-36000

323000-197000=126000

165000-145800= 19200


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