Problem 2

Pullman, Inc. acquired a controlling interest in Sierra Company on 1/1/20x1. At that time, the book value of Sierra Companys net assets was $16,970,000, including the following:

	Fair Value	Book Value	Remaining Life
Buildings	$2,700,000	$3,400,000	7 years
Equipment	3,700,000	3,300,000	5 years
Land	1,700,000	2,550,000	indefinite

In acquiring their controlling interest, Pullman paid $10,450,000 cash in exchange for 55% of the outstanding voting common stock of Sierra. At the time of the acquisition, the fair value of 100% of Sierras outstanding common stock was $19,000,000. Pullman did not pay a control premium to acquire their 55% controlling interest.

Any consideration paid in excess of the fair value of net assets acquired is assigned to goodwill.

The account balances for Pullman, Inc. and Sierra Company at 12/31/20x1 are as follows:

	Pullman, Inc.	Sierra Company
Revenues	(298,000,000)	(103,750,000)
Expenses	271,000,000	95,800,000
Equity in income of Sierra Company	(4,361,500)	0
Net income	(31,361,500)	(7,950,000)
Retained earnings, January 1, 20x1	(2,500,000)	(100,000)
Net income (above)	(31,361,500)	(7,950,000)
Dividends paid	5,000,000	3,000,000
Retained earnings, December 31, 20x1	(28,861,500)	(5,050,000)
Current Assets	30,500,000	20,800,000
Investment in Sierra Company	13,161,500
Land	1,500,000	1,700,000
Buildings	5,600,000	2,360,000
Equipment (net)	3,100,000	2,960,000
Total assets	53,861,500	27,820,000
Accounts payable	(3,100,000)	(4,900,000)
Notes payable		(1,000,000)
Common stock	(2,900,000)	(6,000,000)
Additional paid-in capital	(19,000,000)	(10,870,000)
Retained earnings, Dec. 31, 20x1 (above)	(28,861,500)	(5,050,000)
Total liabilities and stockholders equity	(53,861,500)	(27,820,000)

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Required

1. Prepare the journal entry to record Pullmans acquisition of Sierra Company.
2. Prepare a schedule showing the determination of goodwill, if applicable, for this acquisition.
3. Prepare a schedule showing the allocation of any related purchase price adjustments to the acquired companys assets, including the related annual amortizations, if applicable.
4. For 12/31/20x1, prepare a consolidation worksheet for this transaction. Assume that no goodwill impairment adjustment is required. (For the format, consider the Exhibit 4.6 on page 167 & use Excel)