Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporati
ID: 2491473 • Letter: P
Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $680,000 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $850,000 although Sierra’s book value was only $600,000. 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 $ 60,000 $ 225,000
Buildings and equipment
(10-year remaining life)
275,000 250,000
Copyright (20-year life) 100,000 200,000
Notes payable (due in 8 years) (130,000 ) (120,000 )
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 $ (1,360,000 ) $ (540,000 )
Cost of goods sold 700,000 385,000
Depreciation expense 260,000 10,000
Amortization expense 0 5,000
Interest expense 44,000 5,000
Equity in income of Sierra (105,000 ) 0
Net income $ (461,000 ) $ (135,000 )
Retained earnings, 1/1/15 $ (1,265,000 ) $ (440,000 )
Net income (above) (461,000 ) (135,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/15 $ (1,466,000 ) $ (510,000 )
Current assets $ 965,000 $ 528,000
Investment in Sierra 733,000 0
Land 292,000 60,000
Buildings and equipment (net) 877,000 265,000
Copyright 0 95,000
Total assets $ 2,867,000 $ 948,000
Accounts payable $ (191,000 ) $ (148,000 )
Notes payable (460,000 ) (130,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,466,000 ) (510,000 )
Total liabilities and equities $ (2,867,000 ) $ (948,000 )
At year-end, there were no intra-entity receivables or payables.
Using the acquisition method, prepare the worksheet to consolidate these two companies.
Explanation / Answer
Consolidation Entries Noncontrolling Consolidated Particulars Father Sam Debit Credit Interest Totals Revenues (1,360,000) (540,000) (1,900,000) Cost of goods sold 700,000 385,000 1,085,000 Depreciation expense 260,000 10,000 (E)2,500 267,500 Amortization expense -0- 5,000 (E) 5,000 10,000 Interest expense 44,000 5,000 (E) 1,250 50,250 Equity in income of Sam (105,000) -0- (I) 105,000 -0- Separate company net income (461,000) (135,000) Consolidated net income (487,250) Noncontrolling interest in Sam's income (26,250) 26,250 Controlling interest in CNI (461,000) Retained earnings 1/1 (1,265,000) (440,000) (S) 440,000 (1,265,000) Net income (above) (461,000) (135,000) (461,000) Dividends paid 260,000 65,000 (D) 52,000 13,000 260,000 Retained earnings 12/31 (1,466,000) (510,000) (1,466,000) Current assets 965,000 528,000 1,493,000 Investment in Sam 733,000 (D) 52,000 (S) 480,000 (I) 105,000 (A) 200,000 -0- Land 292,000 60,000 (A) 165,000 517,000 Buildings and equipment (net) 877,000 265,000 (E) 2,500 (A) 25,000 1,119,500 Copyright -0- 95,000 (A) 100,000 (E) 5,000 190,000 Total assets 2,867,000 948,000 3,319,500 Accounts payable (191,000) (148,000) (339,000) Notes payable (460,000) (130,000) (A) 10,000 (E) 1,250 (581,250) NCI in Sam 1/1 (S) 120,000 NCI in Sam 12/31 (A) 50,000 (170,000) (183,250) (183,250) 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 (1,466,000) (510,000) (1,466,000) Total liab. and stockholders' equity (2,867,000) (948,000) (3,319,500)
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