Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January...
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Accounting
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $766,240 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $957,800 although Sierras book value was only $650,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:
Book Value
Fair Value
Land
$
63,900
$
254,900
Buildings and equipment (10-year remaining life)
356,000
326,000
Copyright (20-year life)
181,000
317,000
Notes payable (due in 8 years)
(224,000
)
(213,200
)
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
$
(1,426,320
)
$
(693,450
)
Cost of goods sold
702,000
461,000
Depreciation expense
329,000
19,000
Amortization expense
0
9,050
Interest expense
48,400
5,400
Equity in income of Sierra
(155,080
)
0
Net income
$
(502,000
)
$
(199,000
)
Retained earnings, 1/1/15
$
(1,460,000
)
$
(490,000
)
Net income (above)
(502,000
)
(199,000
)
Dividends declared
260,000
65,000
Retained earnings, 12/31/15
$
(1,702,000
)
$
(624,000
)
Current assets
$
1,062,680
$
619,150
Investment in Sierra
869,320
0
Land
347,000
63,900
Buildings and equipment (net)
928,000
337,000
Copyright
0
171,950
Total assets
$
3,207,000
$
1,192,000
Accounts payable
$
(251,000
)
$
(184,000
)
Notes payable
(504,000
)
(224,000
)
Common stock
(300,000
)
(100,000
)
Additional paid-in capital
(450,000
)
(60,000
)
Retained earnings (above)
(1,702,000
)
(624,000
)
Total liabilities and equities
$
(3,207,000
)
$
(1,192,000
)
At year-end, there were no intra-entity receivables or payables.
Using the acquisition method, prepare the worksheet to consolidate these two companies.
rev: 09_30_2014_QC_54910
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