Question

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.)

Answer 1

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