Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1,...

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $802,720 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $1,003,400 although Sierra’s book value was only $690,000. 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 $ 65,000   $ 290,000  
Buildings and
equipment (10-year remaining life)
287,000   263,000  
Copyright (20-year remaining life) 122,000   216,000  
Notes payable (due in 8 years) (176,000) (157,600)

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 $(1,394,980) $  (684,900)
Cost of goods sold 774,000   432,000  
Depreciation expense 274,000   11,600  
Amortization expense 0   6,100  
Interest expense 52,100   9,200  
Equity in income of Sierra    (177,120)          –0–  
Net income $   (472,000) $   (226,000)
Retained earnings, 1/1/18 $(1,275,000) $   (530,000)
Net income (472,000) (226,000)
Dividends declared     260,000        65,000  
Retained earnings, 12/31/18 $(1,487,000) $  (691,000)
Current assets $    856,160   $   764,700  
Investment in Sierra 927,840   –0–  
Land 360,000   65,000  
Buildings and equipment (net) 909,000   275,400  
Copyright           –0–       115,900  
Total assets $ 3,053,000   $ 1,221,000  
Accounts payable $   (275,000) $   (194,000)
Notes payable (541,000) (176,000)
Common stock (300,000) (100,000)
Additional paid-in capital (450,000) (60,000)
Retained earnings (above)  (1,487,000)    (691,000)
Total liabilities and equities $(3,053,000) $(1,221,000)

At year-end, there were no intra-entity receivables or payables.

Prepare a worksheet to consolidate the financial statements of these two companies

I just need help explaining the Noncontrolling interest in Sierra, see below....

Noncontrolling interest in Sierra $     231,960
Correct!
(1003400*0.2)+44280-13000

(1003400*0.2)+44280-13000 = 231,960      added figures

Homework Answers

Answer #1

Ans:

Non controlling Interest will be calculated as follows.

% of Non controlling interest * Book Value + % of Non controlling interest * Current year Net Income - % of Non controlling interest * Dividend declared.

For the above situation it is seems that. company has reported net income of : $44,280/20% = $221,400

and declared dividend of : $13,000/20%= $65,000.

In such case not controlling interest in Sierra will be:

20%*$1,003,400 + 20%*$221,400 - 20%*$65,000 = $231,960.

For any other clarification please ask in the comment box.

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