Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, 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 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, 2015, 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, 1/1/15 |
$ |
(1,275,000 |
) |
$ |
(530,000 |
) |
| Net income (above) |
|
(472,000 |
) |
|
(226,000 |
) |
| Dividends declared |
|
260,000 |
|
|
65,000 |
|
| |
| Retained earnings, 12/31/15 |
$ |
(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 the year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of these two companies.