Question
On January 1, 2011, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with $3 million
On January 1, 2011, 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 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 valu is assigned to goodwill. BMI had the following balances on January 1, 2011:
Asset | Book Value | Fair Value |
Land | $1,700,000 | $2,550,000 |
Buildings (7 year remaining life) | 2,700,000 | 3,400,000 |
Equipment (5 year remaining life) | 3,700,000 | 3,300,000 |
For internal reporting purposes, JDE emplyed the equity method to account for this investment.
The following account balances are for the year ending December 31, 2011 for both companies.
Account | JDE | BMI |
Revenues | $(298,000,000) | $(103,750,000 |
Expenses | 271,000,000 | 95,800,000 |
Equity in Income of BMI | (4,361,500) | - 0 - |
Net Income | $(31,361,500) | $(7,950,000) |
Retained Earnings, 1/1/2011 | $(2,500,000) | $(100,000) |
Net Income (above) | (31,361,500) | (7,950,000) |
Dividends Paid | 5,000,000 | 3,000,000 |
Retained Earnings, 12/31/2011 | $(28,861,500) | $(5,050,000) |
Current Assets | 30,500,000 | 20,800,000 |
Investment in BMI | 13,161,500 | |
Land | 1,500,000 | 1,700,000 |
Buildings | 5,600,000 | 2,360,000 |
Equipment | 3,100,000 | 2,960,000 |
Total Assets | $53,861,500 | $27,820,000 |
Accounts Payable | $(3,100,000) | $(4,900,000) |
Notes Payable | - 0 - | (1,000,000) |
Common Stock | (2,900,000) | (6,000,000) |
Additional Paid-in Capital | (19,000,000) | (10,870,000) |
Retained Earnings, 12/31/2011 (above) | (28,861,500) | (5,050,000) |
Total Liabilities and Stockholders' Equity | $(53,861,500) | $(27,820,000) |
Required:
Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment. Provide Consolidation Journal Entries and show all calculations.
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