Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $771,200 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $964,000 although Sierra’s book value was only $614,000. 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 $ 65,900 $ 280,900
Buildings and equipment
(10-year remaining life)
345,000 306,000
Copyright (20-year life) 143,000 299,000
Notes payable (due in 8 years) (211,000 ) (193,000 )
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 $ (1,488,320 ) $ (589,800 )
Cost of goods sold 705,000 415,000
Depreciation expense 295,000 11,100
Amortization expense 0 7,150
Interest expense 48,600 7,550
Equity in income of Sierra (114,280 ) 0
Net income $ (554,000 ) $ (149,000 )
Retained earnings, 1/1/15 $ (1,372,500 ) $ (454,000 )
Net income (above) (554,000 ) (149,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/15 $ (1,666,500 ) $ (538,000 )
Current assets $ 953,020 $ 566,350
Investment in Sierra 833,480 0
Land 363,000 65,900
Buildings and equipment (net) 971,000 333,900
Copyright 0 135,850
Total assets $ 3,120,500 $ 1,102,000
Accounts payable $ (198,000 ) $ (193,000 )
Notes payable (506,000 ) (211,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,666,500 ) (538,000 )
Total liabilities and equities $ (3,120,500 ) $ (1,102,000 )
At year-end, there were no intra-entity receivables or payables.
Using the acquisition method, prepare the worksheet to consolidate these two companies.