Question

On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Tractors-R-Us Manufacturing, Inc. (TMI). 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, TMI's book value was $16,970,000.

On January 1, JDE stock has 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. TMI had the following balances on January 1, 2020.

For internal reporting purposes, JDE employed the equity method to account for this investment.

On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Tractors-R-Us Manufacturing, Inc. (TMI). 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, TMI'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. TMI had the following balances on January 1, 2020. Book Value Value Land $1,700,000 $2,550,000 Buildings (seven-year remaining life) 2,700,000 3,400,000 Equipment (five-year remaining life) 3,700,000 3,300,000 Fair For internal reporting purposes, JDE employed the equity method to account for this investment. 1. Prepare a schedule to determine goodwill, and the amortization and allocation amounts. The following account balances are for the year ending December 31, 2020 for both companies. John Doe Enterprises S(298,000,000) 271,000,000 ( 4,361,500) $(31.361,500) Tractors-R-Us Manufacturing $(103,750,000) 95,800,000 Revenues Expenses Equity in income-Tractors-R-UsManufacturing Net income SC 7.950,000) Retained earnings, January 1, 2020 Net income (above) Dividends paid Retained earnings, December 31, 2020 $( 2,500,000) ( 31,361,500) 5.000.000 $( 28,861,500 $ 100.000) ( 7,950,000) 3.000.000 SC 5,050,000) $ 20,800,000 Current Assets Investment in Tractor Manufacturing Land Buildings Equipment (net) Total assets $ 30,500,000 13,161,500 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 S (53,861,500) $ (4,900,000) ( 1,000,000) C 6,000,000) ( 10.870,000) 5,050,000) $( 27.820.000) 2. Prepare the consolidating entries and the consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.

1. Prepare a schedule to determine goodwill, and the amortization and allocation amounts.

2. Prepare the consolidating entries and the consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.

Answer 1

Consideration paid by JDE for 55% stake in BMI
Cash		3,000,000
Common Stock(500,000 shares @ $14.90)		7,450,000
FV of 55% stake		10,450,000
Total FV of BMI		19,000,000
BV of BMI		16,970,000
Excess of FV over BV		2,030,000
Allocations:
Land		850,000
Building(7 years remaining life)		700,000
Equipment (5 year remaining life)		(400,000)
		1,150,000
Goodwill		880,000

Amortization	Excess FV	Yearly Amortiz	JDE Sharew	NCI @45%
Building(7 years remaining life)	700,000	100,000
	(400,000)	(80,000)
		20,000	11,000	6,050

Consolidation Worksheet
			Adjustments		Consolidated
	JDE	BMI	JDE	BMI
Revenues	(298,000,000)	(103,750,000)			(401,750,000)
	271,000,000	95,800,000		20,000
	(4,361,500)		4,361,500
Net Income	(31,361,500)	(7,950,000			(34,930,000)
Retained Earning(january1,2020)	(2,500,000)	(100,000)		100,000	(2,500,000)
Net Income(above)	(31,361,500)	(7,950,000)	4,361,500	3,588,500	(31,361,500)
Dividend Paid	5,000,000	3,000,000		(3,000,000)	5,000,000
Retained Earning(December31,2020)	(28,861,500)	(5,050,000)			(28,861,500)
Current Assets	30,500,000	20,800,000			51,300,000
Investments in BMI	13,161,500		(13,161,500)
Land	1,500,000	1,700,000		850,000	4,050,000
Buildings	5,600,000	2,360,000		600,000	8,560,000
Equipment(net)	3,100,000	2,960,000		(320,000)	5,740,000
Goodwill				880,000	880,000
Total Assets	53,861,500	27,820,000			70,530,000
Accounts Payable	(3,100,000)	(4,900,000)			(8,000,000)
Notes Payable		(1,000,000)			(1,000,000)
Common Stock	(2,900,000)	(6,000,000)		6,000,000	(2,900,000)
Additional Paid-in Capital	(19,000,000)	(10,870,000)		10,870,000	(19,000,000)
Retained Earnings(December 31, 2020)	(28,861,500)	(5,050,000)			(28,861,500)
Non-Controlling Intrest			(10,768,500)		(10,768,500)
Total Liabilities and Shareholder's Equity	(53,861,500)	(27,820,000)			(70,530,000)