Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for$802,720 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessedat $1,003,400 although Sierra's book value was only $690,000. Also, several individual items on Sierra's financialrecords had fair values that differed from their book values as follows:Book ValueFair Value$ 65,000287,000$ 290,000263,000216,000(157,600)LandBuildings and equipment (10-year remaining life)Copyright (20-year remaining life)Notes payable (due in 8 years)122,000(176,000)For internal reporting purposes, Padre, Inc., employs the equity method to account for this investment. Thefollowing account balances are for the year ending December 31, 2021, for both companies.PadreSierra$(1,394,980)774,000274,000(684,900)432,00011,6006,1009,200RevenuesCost of goods soldDepreciation expenseAmortization expenseInterest expense52,100(177,120)(472,000)Equity in income of SierraNet income$$(226,000)$(1,275,000)(472,000)260,000(530,000)(226,000)Retained earnings, 1/1/21Net incomeDividends declared65,000Retained earnings, 12/31/21$(1,487,000)(691,000)$856,160927,840360,000Current assets764,700Investment in SierraLand65,000275,400Buildings and equipment (net)Copyright909,000115,900Total assets$ 3,053,000$ 1,221,000$ (275,000)Accounts payableNotes payable(194,000)(176,000)(100,000)(60,000)(691,000)$(541,000)(300,000)(450,000)(1,487,000)Common stockAdditional paid-in capitalRetained earnings (above)Total liabilities and equities$(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. (For accounts where multipleconsolidation entries are required, combine all debit entries into one amount and enter this amount in the debitcolumn of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in thecredit column of the worksheet. Input all amounts as positive values.)

Given: To prepare the financial statement of the companies given in the consolidated worksheet as,

Answered: percent of the outstanding common e…

percent of the outstanding common e acquisition date, Sierra's total fair gh Sierra's book value was only $69 es that differed from their book valu

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Consolidation

Consolidation in general examination implies an asset oscillating between well-defined methods of trading status. Consolidation is commonly known as market indecisiveness, which completes when the asset's values move forward or backward the trading structure.

Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, 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
$ 65,000
287,000
$ 290,000
263,000
216,000
(157,600)
Land
Buildings and equipment (10-year remaining life)
Copyright (20-year remaining life)
Notes payable (due in 8 years)
122,000
(176,000)
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, 2021, for both companies.
Padre
Sierra
$(1,394,980)
774,000
274,000
(684,900)
432,000
11,600
6,100
9,200
Revenues
Cost of goods sold
Depreciation expense
Amortization expense
Interest expense
52,100
(177,120)
(472,000)
Equity in income of Sierra
Net income
$
$
(226,000)
$(1,275,000)
(472,000)
260,000
(530,000)
(226,000)
Retained earnings, 1/1/21
Net income
Dividends declared
65,000
Retained earnings, 12/31/21
$(1,487,000)
(691,000)
$
856,160
927,840
360,000
Current assets
764,700
Investment in Sierra
Land
65,000
275,400
Buildings and equipment (net)
Copyright
909,000
115,900
Total assets
$ 3,053,000
$ 1,221,000
$ (275,000)
Accounts payable
Notes payable
(194,000)
(176,000)
(100,000)
(60,000)
(691,000)
$
(541,000)
(300,000)
(450,000)
(1,487,000)
Common stock
Additional paid-in capital
Retained earnings (above)
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. (For accounts where multiple
consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit
column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the
credit column of the worksheet. Input all amounts as positive values.)

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