Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, 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 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, 2015, 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 )

Retained earnings, 1/1/15 $ (1,275,000 ) $ (530,000 )
Net income (above) (472,000 ) (226,000 )
Dividends declared 260,000 65,000

Retained earnings, 12/31/15 $ (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