1. (Modified from Problem 4-39): 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: Land Equipment (10-year remaining life) Copyright (20-year remaining life) Book Values $65,000 Fair Values $290,000 287,000 263,000 122,000 216,000 The following account balances are for the year ending December 31, 2018, for both companies. Padre Sierra Revenues (1,393,140) (684,900) Cost of Goods Sold 774,000 432,000 Depreciation Expense 274,000 11.600 Amortization Expense Interest Expense Equity in income of Sierra Net Income Retained Earnings 1/1/2018 Net Income Dividends Declared 0 6,100 52,100 9,200 (178,960) 0 (472,000) (226,000) (1,275,000) (530,000) (472,000) (226,000) 260,000 65,000 Retained Earnings 12/31/2018 (1,487,000) (691,000) Current Assets 854,320 764,700 Investment in Sierra 929,680 0 Land 360,000 65,000 Equipment (net) 909,000 275,400 Copyright 0 115,900 Total Assets Accounts Payable Notes Payable 3,053,000 1,221,000 (275,000) (194,000) (541,000) (176,000) Common Stock (300,000) (100,000) Additional Paid-In Capital (450,000) (60,000) Retained Earnings 12/31/2018 (1,487,000) (691,000) Total Liabilities and Equity (3,053,000) (1,221,000) Required: a. Did Padre pay a premium for the shares of Sierra? How do you know? b. What is the goodwill from the acquisition? C. Which internal accounting method did Padre use in accounting for its investment in Sierra? Briefly explain how you can tell. 2 d. Prepare the consolidation entries and fill the consolidation worksheet. e. If Sierra's net income and dividends declared remain the same for 2019, write out the consolidation entries needed for 12/31/2019