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 S3 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 Fair 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 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) SC 31.361.500) Tractors-R-Us Manufacturing S(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 SC 28,861,500) SO ( 100,000) 7,950,000) 3,000,000 5.050.000) SC $ 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 $ S[ 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) ( 6,000,000) ( 10,870,000) 5.050.000) SC 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

1.

Schedule to calculate Goodwill as on January 1, 2020
55% Interest purchased in TMI							S
Book Value of TMI			16970000	A
(on date of acquisition)
55% of this			9333500	B
Consideration paid by JDE
Cash		3000000
Shares		7450000	10450000	C
(500,000 shares @ $14.90)
Goodwill			1116500	C-B
The entries for the investment would be
	Investment in TMI		10450000		Dr.
	To	Cash		3000000	Cr.
	To	Common Stock		500000	Cr.	par value
	To	Additional Paid in Capital		6950000	Cr.	premium
		(Note the total of credits)		10450000
Assets of TMI on January 1, 2020
		Book Value		Fair Value	Difference
Land		1700000		2550000	850000
Buildings		2700000		3400000	700000	7 year remaining life
Equipment		3700000		3300000	-400000	5 year remaining life
Amortization on December 31, 2020
At year-end, JDE will amortize (proportionately) only the excess of fair value over book value
of depreciable assets.
Buildings had an excess fair value of				700000
Number of years residual life				7
Amortization				100000
Entry
Equity in TMI Income			100000		Dr.
To	Investment in TMI			100000	Cr.