Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $788,160 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $985,200 although Sierra’s book value was only $633,000. 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	$	68,300		$	323,300
Buildings and equipment   (10-year remaining life)		353,000			305,000
Copyright (20-year life)		108,000			240,000
Notes payable (due in 8 years)		(198,000	)		(184,800	)

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, 2015, for both companies.

		Padre			Sierra
Revenues	$	(1,577,860	)	$	(579,000	)
Cost of goods sold		743,000			388,000
Depreciation expense		349,000			18,800
Amortization expense		0			5,400
Interest expense		51,100			6,800
Equity in income of Sierra		(125,240	)		0
Net income	$	(560,000	)	$	(160,000	)
Retained earnings, 1/1/15	$	(1,450,000	)	$	(473,000	)
Net income (above)		(560,000	)		(160,000	)
Dividends declared		260,000			65,000
Retained earnings, 12/31/15	$	(1,750,000	)	$	(568,000	)
Current assets	$	1,176,600		$	572,900
Investment in Sierra		861,400			0
Land		333,000			68,300
Buildings and equipment (net)		882,000			334,200
Copyright		0			102,600
Total assets	$	3,253,000		$	1,078,000
Accounts payable	$	(222,000	)	$	(152,000	)
Notes payable		(531,000	)		(198,000	)
Common stock		(300,000	)		(100,000	)
Additional paid-in capital		(450,000	)		(60,000	)
Retained earnings (above)		(1,750,000	)		(568,000	)
Total liabilities and equities	$	(3,253,000	)	$	(1,078,000	)

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

     Using the acquisition method, prepare the worksheet to consolidate these two companies.

Answer 1