Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $796,960 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $996,200 although Sierra’s book value was only $623,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows: Buildings and equipment (10-year remaining life) 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, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $796,960 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $996,200 although Sierra’s book value was only $623,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows: Solution Ans: Determination of consolidate Balances: Acquisition-date subsidiary fair value (given) $996,200 Book value of subsidiary (given) $623,000 Fair value in excess of book value $373,200 Allocations to specific accounts based on difference between fair value and book value Land $226,000 Buildings and equipment $18,000 Copyright $150,000 Notes payable $15,200 Total $373,200 Annual excess amortizations: Buildings and equipment ($18,000 / 10) $1,800 Copyright ($150,000 / 20) $7,500 Notes payable ($15,200 / 8) $1,900 Total $7,600 Acquisition Method: Consolidation Entries Accounts Padre Sierra Debit Credit No controlling Interest Consolidates Total Revenues (1,396,980) (657,250) (2,054,230) Cost of goods sold 736,000 399,000 1,135,000 Depreciation Expense 298,000 15,100 E 1,800 311,300 Amortization Expense - 8,600 E 7,500 16,100 Interest Expense 50,100 5,550 E 1,900 57,550 Equity in Income of Sierra (177,120) - I 177,120 - Separate Company Net Income (490,000) (229,000) consolidate Net Income (534,280) No controlling Interest in Sierra\'s Income (44,280) 44,280 Controlling Interest in CNI (490,000) Retained Earnings 1 / 1 (1,380,000) (463,000) S (463,000) (1,380,000) Net Income (above) (490,000) (229,000) (490,000) Dividend Paid 260,000 65,000 D 52,000 13,000 260,000 Retained Earnings 12/31 (1,610,000) (627,000) (1,610,000) Current Assets 854,920 569,100 1,424,020 Investments in Sierra 922,080 - D 52,000 S I A - Land 369,000 60,600 A 226,000 655,600 Buildings and Equipment 955,000 324,900 E 1,800 A 18,000 1,263,700 Copyright - 163,400 A 150,000 E 7,500 305,900 Total Assets 3,101,000 1,118,000 3,649,220 Accounts Payable (220,000) (199,000) (419,000) Notes Payable (521,000) (132,000) A 15,200 E 1,900 (639,700) NCI in Sierra 1/1 NCI in Sierra 12/ 31 (199,240) (230,520) (230,520) Common Stock (300,000) (100,000) S 100,000 (300,000) Additional paid-in capital (450,000) (60,000) S 60,000 (450,00.

1. Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January
1, 2015, for $796,960 cash. At the acquisition date, Sierra’s total fair value, including the
noncontrolling interest, was assessed at $996,200 although Sierra’s book value was only
$623,000. Also, several individual items on Sierra’s financial records had fair values that
differed from their book values as follows:
Buildings and equipment
(10-year remaining life)
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, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January
1, 2015, for $796,960 cash. At the acquisition date, Sierra’s total fair value, including the
noncontrolling interest, was assessed at $996,200 although Sierra’s book value was only
$623,000. Also, several individual items on Sierra’s financial records had fair values that
differed from their book values as follows:
Solution
Ans:
Determination of consolidate Balances:
Acquisition-date subsidiary fair value (given) $996,200
Book value of subsidiary (given) $623,000
Fair value in excess of book value $373,200
Allocations to specific accounts based on difference between fair value and book value
Land $226,000
Buildings and equipment $18,000
Copyright $150,000
Notes payable $15,200
Total $373,200
Annual excess amortizations:
Buildings and equipment ($18,000 / 10) $1,800
Copyright ($150,000 / 20) $7,500
Notes payable ($15,200 / 8) $1,900
Total $7,600

2. Acquisition Method:
Consolidation Entries
Accounts
Padre
Sierra
Debit
Credit
No controlling Interest
Consolidates Total
Revenues
(1,396,980)
(657,250)
(2,054,230)
Cost of goods sold
736,000
399,000
1,135,000
Depreciation Expense
298,000
15,100
E
1,800
311,300
Amortization Expense
-
8,600
E
7,500
16,100
Interest Expense
50,100
5,550
E
1,900
57,550
Equity in Income of Sierra

3. (177,120)
-
I
177,120
-
Separate Company Net Income
(490,000)
(229,000)
consolidate Net Income
(534,280)
No controlling Interest in Sierra's Income
(44,280)
44,280
Controlling Interest in CNI
(490,000)
Retained Earnings 1 / 1
(1,380,000)
(463,000)
S
(463,000)
(1,380,000)
Net Income (above)
(490,000)
(229,000)
(490,000)
Dividend Paid
260,000
65,000
D
52,000
13,000
260,000
Retained Earnings 12/31
(1,610,000)
(627,000)
(1,610,000)

4. Current Assets
854,920
569,100
1,424,020
Investments in Sierra
922,080
-
D
52,000
S
I
A
-
Land
369,000
60,600
A
226,000
655,600
Buildings and Equipment
955,000
324,900
E
1,800
A
18,000
1,263,700
Copyright
-
163,400
A
150,000
E
7,500
305,900
Total Assets

5. 3,101,000
1,118,000
3,649,220
Accounts Payable
(220,000)
(199,000)
(419,000)
Notes Payable
(521,000)
(132,000)
A
15,200
E
1,900
(639,700)
NCI in Sierra 1/1
NCI in Sierra 12/ 31
(199,240)
(230,520)
(230,520)
Common Stock
(300,000)
(100,000)
S
100,000
(300,000)
Additional paid-in capital
(450,000)
(60,000)
S
60,000
(450,000)
Retained Earnings 12/31 (above)
(1,610,000)
(627,000)
(1,610,000)

6. Total liabilities and Stockholders’ Equity
(3,101,000)
(1,118,000)
(3,649,220)
Acquisition Method:
Consolidation Entries
Accounts
Padre
Sierra
Debit
Credit
No controlling Interest
Consolidates Total
Revenues
(1,396,980)
(657,250)
(2,054,230)
Cost of goods sold
736,000
399,000
1,135,000
Depreciation Expense
298,000
15,100
E
1,800
311,300
Amortization Expense
-
8,600
E
7,500
16,100
Interest Expense
50,100
5,550

7. E
1,900
57,550
Equity in Income of Sierra
(177,120)
-
I
177,120
-
Separate Company Net Income
(490,000)
(229,000)
consolidate Net Income
(534,280)
No controlling Interest in Sierra's Income
(44,280)
44,280
Controlling Interest in CNI
(490,000)
Retained Earnings 1 / 1
(1,380,000)
(463,000)
S
(463,000)
(1,380,000)
Net Income (above)
(490,000)
(229,000)
(490,000)
Dividend Paid
260,000
65,000
D
52,000
13,000
260,000

8. Retained Earnings 12/31
(1,610,000)
(627,000)
(1,610,000)
Current Assets
854,920
569,100
1,424,020
Investments in Sierra
922,080
-
D
52,000
S
I
A
-
Land
369,000
60,600
A
226,000
655,600
Buildings and Equipment
955,000
324,900
E
1,800
A
18,000
1,263,700
Copyright
-
163,400
A
150,000

9. E
7,500
305,900
Total Assets
3,101,000
1,118,000
3,649,220
Accounts Payable
(220,000)
(199,000)
(419,000)
Notes Payable
(521,000)
(132,000)
A
15,200
E
1,900
(639,700)
NCI in Sierra 1/1
NCI in Sierra 12/ 31
(199,240)
(230,520)
(230,520)
Common Stock
(300,000)
(100,000)
S
100,000
(300,000)
Additional paid-in capital
(450,000)
(60,000)
S
60,000
(450,000)

10. Retained Earnings 12/31 (above)
(1,610,000)
(627,000)
(1,610,000)
Total liabilities and Stockholders’ Equity
(3,101,000)
(1,118,000)
(3,649,220)