Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporati
ID: 2334098 • Letter: P
Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $736,960 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $921,200 although Sierra’s book value was only $634,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:
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.
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.)
Book Value Fair Value Land $ 60,800 $ 237,800 Buildings and equipment (10-year remaining life) 301,000 268,000 Copyright (20-year remaining life) 177,000 305,000 Notes payable (due in 8 years) (229,000 ) (213,800 )Explanation / Answer
Solution:-
Excess value of assets and liabilities acquried at the time of acquisition :-
= 301,000 - 268,000
= $ 33,000
= 177,000 - 305,000
= - $ 128000
= 229,000 - 213,800
= $15,200
= ( 60,800 + 301,000 + 177,000 ) - 229,000
=538,800 - 229,000
= $309,800
=( 237,800 + 268,000 + 305,000 ) - 213,800
= 810,800 - 213,800
= $597,000
= [( - 177,000) + 33,000 + (- 128000 )] - 15,200
= - $272,000 - 15,200
=- $ 287,200
= $921,200 * 20%
= $184,240
= 736,960 + 184,240
= $921,200
= 100,000 * 80%
= $80,000
= 100,000 * 20%
= $20,000
= 80,000 + 20,000
= $100,000
= $60,000 * 80%
= $48,000
= $60,000 * 20%
= $12,000
= 48,000 + 12,000
= $60,000
= -177,000 * 80%
= - $141,160
= - 177,000 * 20%
= - $35,400
= 33,000 * 80%
= $26,400
= 33,000 * 20 %
= $6,600
= - $ 128000 * 80%
=- $102,400
= - - $ 128000 * 20%
= - $25,600
- $ 128000
= 15,200 * 80%
= $12,160
= $15,200 * 20%
= $304
= {( - $141,160)+ (- $102,400) + ( 26,400 ) - 12,160 } -
= $
Depreciation , Amortization and interest expenses on excess value acquired :-
Book Value Fair Value Difference of fair vaalue over book value Land $60,800 $237,800 = 60,800 - 237,800 = - $177,000 Buildings and equipment (10-year remaining life) $301,000 $268,000= 301,000 - 268,000
= $ 33,000
Copyright (20-year remaining life) $177,000 $305,000= 177,000 - 305,000
= - $ 128000
Notes payable (due in 8 years) $229,000 $213,800= 229,000 - 213,800
= $15,200
Total= ( 60,800 + 301,000 + 177,000 ) - 229,000
=538,800 - 229,000
= $309,800
=( 237,800 + 268,000 + 305,000 ) - 213,800
= 810,800 - 213,800
= $597,000
= [( - 177,000) + 33,000 + (- 128000 )] - 15,200
= - $272,000 - 15,200
=- $ 287,200
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