Chapter 4 Problem 1 On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with $3 million cash and 500,000 shares of JDE common stock (par value $1.00 per share). At the time of the acquisition, BMI's book value was $16,970,000. On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill. For internal reporting purposes, JDE employed the equity method to account for this investment. Required: 1. Determine the Excess of Fair value over Book value and allocate it to the 4 mentioned items. 2. Determine the amortization of the excess fair value over book value. 3. Determine the Equity in Bubba's earnings and allocate it to the controlling and non-controlling interest. 4. Determine the Ending balance of the Investment in Bubba Manufactuing account. 5. Complete the consolidation worksheet. (Total Assets = $70,530,000 and NCI = ($10,768,500) $3,000,000 Chapter 4 Problem 1 Consideration Given January 1, 2020 EQUITY Method Mkt Price $14.90 Cash Stock Tot consideration NCI Tot Acquisition V Shares 500,000 55% 45% BMI Book Value $16,970,000 BMI had the following balances on January 1, 2020. Book Value Land $1,700,000 Buildings (remaining life-7 yrs) $2,700,000 Equipment (remaining life-5 yrs) $3,700,000 Fair Value $2,550,000 $3,400,000 $3,300,000 115. The following account balances are for the year ending December 31, 2020 for both companies. Revenues Expenses Equity in income of Bubba Manufacturing Net income John Doe Bubba Enterprises Manufacturing (298.000.000) (103,750,000) 271,000,000 95,800,000 (4.361,500) 0 (31.361.500 (7.950.000 (2,500,000) Retained earnings, January 1, 2020 Net income (above) Dividends paid Retained earnings. December 31, 2020 (31,361,500) 5,000,000 (100,000) (7.950,000) 3,000,000 (28.861.500 (5.050.000) 30,500,000 20,800,000 13,161,500 Current Assets Investment in Bubba Manufacturing Land Buildings Equipment (net) Total assets 1,500,000 5,600,000 3.100.000 53.861,500 1,700,000 2.360,000 2,960,000 27.820.000 (3,100,000) Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 2020 (above) Total liabilities and stockholders equity (2.900,000) (19,000,000) (28,861,500) (4,900,000) (1.000.000) (6.000.000) (10.870.000) (5,050,000) (53.861.500) (27.820.000) Consolidated Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment. Consolidation Worksheet for John Doe Enterprises and Bubba Manufacturing at 12/31/20. CONSOLIDATION WORKSHEET For the year ended 12/31/2020 Consolidation Entries John Doe Bubba MFG. NCI Income Statement DR CR Revenues (298,000,000) (103,750,000) Expenses 271,000,000 95,800,000 Equity in Sub Income (4,361,500) 0 Net Income (31.361.500) 17.950.000) Consolidated Net Income NCI share of CNI JDE share of CNI Statement of Retained Earnings R/E, 1/1/20 (2,500,000) (100,000) Net Income (31,361,500) (7,950,000) Dividends 5,000,000 3.000.000 R/E, 12/31/20 (28.861.500) 15.050.000) Balance Sheet Current assets 30,500,000 20,800,000 552 Investment in Bubba Mfg 13,161,500 1,500,000 5,600,000 3,100,000 1,700,000 2,360,000 2,960,000 Land Building (net) Equipment (net) Goodwill Total Assets Liabilities Notes Payable 45% NCI 1/1/20 53.861.500 (3,100,000) 27.820.000 (4,900,000) (1,000,000) NCI 12/31/20 Common Stock Additional Paid-in Capital R/E, 12/31/20 Total liabilities & Stockholders' Equity (2,900,000) (19,000,000) (28,861,500) (53,861,500) (6,000,000) (10,870,000) (5,050,000) (27,820,000)