Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $754,080 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $942,600 although Sierra’s book value was only $659,000. 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	$	63,000			$	297,000
Buildings and equipment (10-year remaining life)		355,000				311,000
Copyright (20-year remaining life)		137,000				217,000
Notes payable (due in 8 years)		(155,000	)			(141,400	)

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	$	(1,427,540	)		$	(657,900	)
Cost of goods sold		752,000				413,000
Depreciation expense		292,000				11,500
Amortization expense		0				6,850
Interest expense		43,500				6,550
Equity in income of Sierra		(174,960	)			0
Net income	$	(515,000	)		$	(220,000	)
Retained earnings, 1/1/18	$	(1,362,500	)		$	(499,000	)
Net income		(515,000	)			(220,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,617,500	)		$	(654,000	)
Current assets	$	941,460			$	650,350
Investment in Sierra		877,040				0
Land		308,000				63,000
Buildings and equipment (net)		924,000				343,500
Copyright		0				130,150
Total assets	$	3,050,500			$	1,187,000
Accounts payable	$	(218,000	)		$	(218,000	)
Notes payable		(465,000	)			(155,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,617,500	)			(654,000	)
Total liabilities and equities	$	(3,050,500	)		$	(1,187,000	)

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.)

Answer 1

ANSWER:

Here we have to preapre the worksheet for consolidation by using acquistion method,

Accounts	Padre($)	Sierra($)	Debit($)	Credit($)	Non controlling interest($)	Consolidated totals($)
Revenues	1427540	657900				2085440
Cost of goods sold	752000	413000				1165000
Depreciation expense	292000	11500		4400		299100
Amortization expense		6850	4000			10850
Interest expense	43500	6550	1700			51750
Equity in income of sierra	174960		174960			0
Seperate company net income	315000	220000
Consolidated net income						558740
NI to non controlling interest					43740	43740
NI to controlling interest						515000
Retained earnings 1/1	1362500	499000	499000			1362500
Net income	515000	220000				515000
Divideneds declared	260000	65000		52000	13000	260000
Retained earnings 12/31	1617500	654000				1617500
Current assests	941460	650350				1591810
Investment in sierra	877040		52000	552000
				174960
				250720		0
Land	308000	63000	245000			616000
Buildings and equipment	924000	343500	4400	4400		1227900
Copy rights		130150	80000	4000		206150
Total assests	3050500	1187000				2050050
Accounts payable	218000	218000				436000
Notes payable	465000	155000	13600	1700		608100
NCI in sierra 1/1				138000
NCI in sierra 12/31				57340	197040
					227780	227780
Common stock	300000	100000	100000			300000
Additional paid in capital	450000	60000	60000			450000
Retained earnings 12/31	1617500	654000				1617500
Total liabilities an equaties	3050500	1187000	1265920	1265920		2050050