Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Frank Woods Business Accounting Volume 1

Authors: Alan Sangster, Frank Wood

13th Edition

1292084669, 9781292084664

More Books

Students also viewed these Accounting questions

Question

How do childhood experiences affect self-esteem?

Answered: 1 week ago