Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporati
ID: 2565720 • Letter: P
Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $791,520 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessed at $989,400 although Sierra's book value was only $638,000. Also, several individual items on Sierra's financial records had fair values that differed from their book values as follows: Fair Value 307,200 276,000 218,000 (172,600) Book Value Land Buildings and equipment (10-year remaining life) Copyright (20-year remaining life) Notes payable (due in 8 years) $ 65,200 295,000 104,000 187,000) 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, 2018, for both companies Padre Sierra Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra (1,401,180) (647,000) 426,000 15,500 5,200 5,300 770,000 264,000 50,700 (151,520) $ (468,000) (195,000) $ (1,492,500) (478,000) 195,000) Net income Retained earnings, 1/1/18 Net income Dividends declared (468, 000) 260,000 65,000 Retained earnings, 12/31/18 Current assets Investment in Sierra Land Buildings and equipment (net Copyright (1,700,500) (608,000) $ 998,460 891,040 349,000 944,000 0 3,182,500 $ 681,500 65,200 279,500 98,800 1,125,000 Total assets Accounts payable $ (205,000) 170,000)Explanation / Answer
PADRE, INC. AND SIERRA CORPORATION Consolidation Worksheet Consolidation Entries Non controlling Interest Consolidated Interest Accounts Padre Sierra Debit Credit Revenues -$1,401,180 -$647,000 -$2,048,180 Cost of goods sold $770,000 $426,000 $1,196,000 Depreciation expense $264,000 $15,500 E $1,900 $277,600 Amortization expense $5,200 E $5,700 $10,900 Interest expense $50,700 $5,300 E $1,800 $57,800 Equity in income of Sierra -$151,520 I $151,520 $0 Separate company net income -$468,000 -$195,000 Consolidated net income -$505,880 NI to noncontrolling interest -$37,880 $37,880 Controlling Interest in CNI -$468,000 Retained earnings, 1/1 -$1,492,500 -$478,000 S $478,000 -$1,492,500 Net income -$468,000 -$195,000 -$468,000 Dividends declared $260,000 $65,000 D $52,000 $13,000 $260,000 Retained earnings, 12/31 -$1,700,500 -$608,000 -$1,700,500 Current assets $998,460 $681,500 $1,679,960 Investment in Sierra $891,040 $52,000 S $127,600 $0 I $151,520 A Land $349,000 $65,200 A $242,000 $656,200 Buildings and equipment (net) $944,000 $279,500 E $1,900 A $19,000 $1,206,400 Copyright $0 $98,800 A $114,000 E $5,700 $207,100 Total assets $3,182,500 $1,125,000 $3,749,660 Accounts payable -$205,000 -$170,000 -$375,000 Notes payable -$527,000 -$187,000 A $14,400 E $1,800 -$701,400 NCI in Sierra 1/1 S $119,800 NCI in Sierra 12/31 A $78,080 -$197,880 -$222,760 -$222,760 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 -$1,700,500 -$608,000 -$1,700,500 Total liabilities and stockholders' equity -$3,182,500 -$1,125,000 $1,221,320 $557,400 -$3,749,660 - Purchase price allocation and annual amortization Acquisition-date subsidiary fair value $989,400 Book value of subsidiary -$638,000 Fair value in excess of book value $351,400 Allocations to specific accounts based on difference between fair value and book value: Land ($307200 -65200) $242,000 Buildings and equipment ($276000 - $295000) -$19,000 Copyright $114,000 Notes payable $14,400 Total $351,400 Life Excess Annual excess amortizations: (years) Amortizations Buildings and equipment -$19,000 10 -$1,900 Copyright 114000 20 5700 Notes payable 14400 8 1800 Total $5,600
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