Padre Inc buys 80 percent of the outstanding common stock of

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $778,080 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $972,600 although Sierra’s book value was only $604,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:

  Buildings and equipment
  (10-year remaining life)

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.

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

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $778,080 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $972,600 although Sierra’s book value was only $604,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:

Solution

PADRE, INC. AND SIERRA CORPORATION Consolidation Worksheet Consolidation Entries Non controlling Interest Consolidated Interest Accounts Padre Sierra Debit Credit Revenues -$1,488,480 -$605,850 -$2,094,330 Cost of goods sold $790,000 $380,000 $1,170,000 Depreciation expense $294,000 $13,500 E $1,400 $306,100 Amortization expense $6,450 E $5,500 $11,950 Interest expense $48,000 $5,900 E $1,950 $55,850 Equity in income of Sierra -$155,160 I $155,160 $0 Separate company net income -$511,640 -$200,000 Consolidated net income -$550,430 NI to noncontrolling interest -$38,790 $38,790 Controlling Interest in CNI -$511,640 Retained earnings, 1/1 -$1,500,000 -$444,000 S $444,000 -$1,500,000 Net income -$512,000 -$200,000 -$512,000 Dividends declared $260,000 $65,000 D $52,000 $13,000 $260,000 Retained earnings, 12/31 -$1,752,000 -$579,000 -$1,752,000 Current assets $1,073,760 $619,250 $1,693,010 Investment in Sierra $881,240 $52,000 S $120,800 $0 I $155,160 A Land $388,000 $66,700 A $257,000 $711,700 Buildings and equipment (net) $925,000 $318,500 E $1,400 A $14,000 $1,230,900 Copyright $0 $122,550 A $110,000 E $5,500 $227,050 Total assets $3,268,000 $1,127,000 $3,862,660 Accounts payable -$266,000 -$240,000 -$506,000 Notes payable -$500,000 -$148,000 A $15,600 E $1,950 -$634,350 NCI in Sierra 1/1 S $119,800 NCI in Sierra 12/31 A $74,720 -$194,520 -$220,310 -$220,310 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 -$1,752,000 -$579,000 -$1,752,000 Total liabilities and stockholders\' equity -$3,268,000 -$1,127,000 $1,202,610 $545,330 -$3,862,660 - Purchase price allocation and annual amortization Acquisition-date subsidiary fair value $972,600 Book value of subsidiary -$604,000 Fair value in excess of book value $368,600 Allocations to specific accounts based on difference between fair value and book value: Land ($323700 -66700) $257,000 Buildings and equipment ($318000 - $332000) -$14,000 Copyright $110,000 Notes payable $15,600 Total $368,600 Life Excess Annual excess amortizations: (years) Amortizations Buildings and equipment -$14,000 10 -$1,400 Copyright 110000 20 5500 Notes payable 15600 8 1950 Total $6,050 NCI 1/1 = $194520 - $74720 119800