Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $765,440 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $956,800 although Sierra’s book value was only $694,000. 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	$	63,200			$	241,200
Buildings and equipment (10-year remaining life)		365,000				331,000
Copyright (20-year remaining life)		159,000				261,000
Notes payable (due in 8 years)		(208,000	)			(191,200	)

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	$	(1,498,640	)		$	(686,150	)
Cost of goods sold		759,000				445,000
Depreciation expense		339,000				12,400
Amortization expense		0				7,950
Interest expense		47,400				9,800
Equity in income of Sierra		(165,760	)			0
Net income	$	(519,000	)		$	(211,000	)
Retained earnings, 1/1/18	$	(1,332,500	)		$	(534,000	)
Net income		(519,000	)			(211,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,591,500	)		$	(680,000	)
Current assets	$	913,300			$	630,150
Investment in Sierra		879,200				0
Land		365,000				63,200
Buildings and equipment (net)		948,000				352,600
Copyright		0				151,050
Total assets	$	3,105,500			$	1,197,000
Accounts payable	$	(270,000	)		$	(149,000	)
Notes payable		(494,000	)			(208,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,591,500	)			(680,000	)
Total liabilities and equities	$	(3,105,500	)		$	(1,197,000	)

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

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

Answer 1