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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, 2018, 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, 2018, 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, 1/1/18 $ (1,265,000 ) $ (440,000 )
Net income (461,000 ) (135,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/18 $ (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.

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.)

PADRE INC., AND SIERRA CORPORATION
Consolidated Worksheet
For Year Ending December 31, 2018
Consolidation Entries
Accounts Padre Sierra Debit Credit Noncontrolling Interest Consolidated Totals
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
Separate company net income $(461,000) $(135,000)
Consolidated net income
NI to noncontrolling interest
NI to Padre Company
Retained earnings 1/1 $(1,265,000) $(440,000)
Net income (above) (461,000) (135,000)
Dividends declared 260,000 65,000
Retained earnings 12/31 $(1,466,000) $(510,000)
Current assets $965,000 $528,000
Investment in Sierra 733,000
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)
NCI in Sierra 1/1
NCI in Sierra 12/31
Common stock (300,000) (100,000)
Additional paid-in capital (450,000) (60,000)
Retained earnings 12/31 (above) (1,466,000) (510,000)
Total liabilities and stockholders' equity $(2,867,000) $(948,000)

Solutions

Expert Solution

PADRE INC., AND SIERRA CORPORATION
Consolidated Worksheet
For Year Ending December 31, 2018
Consolidation Entries
Accounts Padre Sierra Debit Credit Noncontrolling Interest Consolidated 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)

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