Rolling River Company

Acct 510

Consolidation Case

File:Rolling River Company Consolidation Case

Situation: You have just been hired by Rolling River Company as their accountant. The CEO is excited to have the companys first 4-year degree accounting major on the team (previously they have only used internal clerical accounting staff supported by an outside consultant). The outside consultant is a CPA and the cost of keeping the CPA was too expensive for month-to-month accounting. In your interview with the CEO you did mention that you had recently completed an advanced accounting class that included accounting for business combinations.

Business Profile: Rolling River Company is a distributor of unique four 4 wheel bicycles that have a 360 degree turning radius. The business currently offers three non-electric bicycles; single rider, two person, and three/four person. Only one rider has the ability to steer but each seated rider has the ability to pedal. The business just completed fiscal year 2016 which was another successful year.

While the company has been growing organically for the past few years the board members (who represent the shareholders) of Rolling River Company do not see enough growth in the existing business and have been pushing the CEO to make a strategic purchase.

Rolling River Company has been in talks to purchase a company in Denmark. The company manufactures one key product, the Denmark Wheel. The Denmark Wheel is an electric wheel that can be placed on almost any bike to give riders the choice of either pedaling or simply engaging the electric wheel. The CEO strongly believes this acquisition could double U.S. sales and be a key factor in taking the business international.

Exhibits:

A Denmark Wheel Company 12/31/16 balance sheet (page 3)

B Rolling River Company 12/31/16 balance sheet (page 4)

C Denmark Wheel Company 12/31/17 income statement, statement of retained earnings, and balance sheet (pages 5-6)

D Rolling River Company 12/31/17 income statement, statement of retained earnings, and balance sheet (pages 7-8)

Note: The 12/31/16 account balances also represent the pre-acquisition 1/1/17 account balances (they are the same).

The CEO has made the following requests:

Request A Prepare the Rolling River Company consolidated balance sheet as of 1/1/17 assuming Rolling River Company purchased 80% of the Denmark wheel Company stock (STOCK ACQUISITION) for $13 million ($1 million in cash and $12 million in Rolling River shares). Note: Rolling River Shares (market value $50/share). Provide enough detail for your CEO to understand the accounting Include the following: 1. Prepare the STOCK ACQUISITION journal entry to record the acquisition (provided by instructor) Debit $13,000,000 Credit 1/1/17Investment in Subsidiary - Denmark Wheel Company Cash Common Stock APIC 1,000,000 240,000 $11,760,000 Purchase 80% of Denmark Wheel Company shares by paying l $1,000,000 cash and issuing to the Denmark Wheel Company shareholders (the 80% that are selling their shares). 240,000 shares $ 50 Market Value $ 1 ParValue 49 APIC 2. 3. 4. Prepare a CAD Prepare the workpaper entries (show separate from the consolidation workpaper) Prepare the 1/1/17 consolidated balance sheet workpaper (DATE OF Acquisition - Chapter 3) Request A Prepare the Rolling River Company consolidated balance sheet as of 1/1/17 assuming Rolling River Company purchased 80% of the Denmark wheel Company stock (STOCK ACQUISITION) for $13 million ($1 million in cash and $12 million in Rolling River shares). Note: Rolling River Shares (market value $50/share). Provide enough detail for your CEO to understand the accounting Include the following: 1. Prepare the STOCK ACQUISITION journal entry to record the acquisition (provided by instructor) Debit $13,000,000 Credit 1/1/17Investment in Subsidiary - Denmark Wheel Company Cash Common Stock APIC 1,000,000 240,000 $11,760,000 Purchase 80% of Denmark Wheel Company shares by paying l $1,000,000 cash and issuing to the Denmark Wheel Company shareholders (the 80% that are selling their shares). 240,000 shares $ 50 Market Value $ 1 ParValue 49 APIC 2. 3. 4. Prepare a CAD Prepare the workpaper entries (show separate from the consolidation workpaper) Prepare the 1/1/17 consolidated balance sheet workpaper (DATE OF Acquisition - Chapter 3)