Problem 4-37 (LO 4-1, 4-5, 4-6) Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $736,480 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessed at $920,600 although Sierra's book value was only $606,000. 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 67,000 294,000 Buildings and equipment 366,000 324,000 190,000 310,000 (10-year remaining life) Copyright (20-year life) Notes payable (due in 8 years) (181,000) (171,400) 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 Sierra $(1,544,300) (620,500) Revenues Cost of goods sold 449,000 796,000 276,000 Depreciation expense 17,500 Amortization expense 9,500 Interest expense 47,500 7,500 (107,200) Equity in income of Sierra (532,000) (137,000) Net income $(1,482,500) (446,000) Retained earnings, 1/1/15 (532,000) (137,000) Net income (above) Dividends declared 260,000 65,000 Retained earnings, 12/31/15 $(1,754,500) (518,000) 1,137,820 493,000 Current assets Investment in Sierra 791,680