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 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 $(298,000,000) 271,000,000 4.361.500) $(31.361.500) Tractors-R-Us Manufacturing S(103,750,000) 95.800,000 Revenues Expenses Equity in income-Tractors-R-UsManufacturing Net income O SC 7.950.000) SC ( 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 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 S. 53.861.500 1,700,000 2,360,000 2.960.000 27.820,000 $ SC 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) C 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

John Doe Enterprises(JDE)
Cash				$3,000,000
Fair value of stocks(500,000 x $14.90)				7,450,000
Total acquisition cost				$10,450,000
Less: Fair value of net assets acquired
Total book value of BMI			$16,970,000
Adjustments of some assets to their fair values:
Increase in value of land($2,550,000- $1,700,000)			850,000
Increase in value of building($3,400,000- $2,700,000)			700,000
Decrease in value of land($3,300,000- $3,700,000)			400,000
Total fair value of BMI's net assets			$18,120,000
x Percent of intrest acquired in BMI			55%
Fair value of net asset acquired				9,966,000
Goodwill				$484,000
Under US GAAP and IFRS, goodwill is no longer amortized but subject to impairment test at
the end of the accounting period at least once a yera or when necessary
For purposes of computing JDE's share in net income of BMI, the net income of BMI shall
be adjusted first with the following
1) Deduct additional depreciation for building for $100,000($700,000/7)
2) Add reduction in depreciation for equipment for $80,000($400,000/5)