Adv accounting unit 4
For this assignment, use your Fundamentals of Advanced Accounting text and the Excel spreadsheet provided on the companion website (linked in Resources) to complete the following:
· Problem 39 on page 203. This problem tests your ability to carry out the consolidation of account balances for a business combination using the acquisition method. In the spreadsheet, use tab P04-39 for your answers.
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, 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 remaining 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, 2018, 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) |
|
page 204Retained earnings, 1/1/18 |
$(1,275,000) |
$ (530,000) |
|
Net income |
(472,000) |
(226,000) |
|
Dividends declared |
260,000 |
65,000 |
|
Retained earnings, 12/31/18 |
$(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 year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of these two companies.