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.

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.

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. Revenues Expenses Equity in income-Tractors-R-UsManufacturing Net income John Doe Enterprises S(298,000,000) 271,000,000 4,361,500) $(31.361.500) Tractors-R-Us Manufacturing S(103,750,000) 95,800,000 SC7950,000) Retained earnings, January 1, 2020 Net income (above) Dividends paid Retained earnings, December 31, 2020 $ ( SC 2,500,000) ( 31,361,500) 5.000.000 SC28.861.500) 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 $ Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, Dec. 31, 2020 (above) Total liabilities and stockholders' equity S( 3,100,000) ( 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.

Answer 1

ANSWER

AS per the given question,

consideration pould by IDE for 55% stake in TMI - 3,000,000 cash common FV stock (500,000 shares @ $14.90 of 55% stake - 7,450,000 10,450,000 19,000,000 TMI 16,970,000 Total FV of BV OF THI Excess of FV over BV 2,030,000 650,000 Allocations: land Building (7 yrs remaining life) Equipment (5 yrs nemainus life) 700,000 (400,000) 1,150,000 Good will 880,000 Amortization Excess e of Yearly amortin JDE shat IV 700,000 100,000 Building C7 yrs memaining ) Equipment (5 ye remaining lobe) (400,000) (30000 20,000 C 6050 Alt Gr Ctrl

Consolidation Worksheet Consolidated Adjustments JDE BMI JDE BMI (298,000,000) (103,750,000) 271,000,000 95,800,000 (4,361,500) (31,361,500) (7,950,000) (401,750,000) 366,820,000 Revenues Expenses Equity in Income of BMI Net Income 20,000 4,361,500 (34,930,000) 4,361,500 Retained Earnings (January 1, 2020) Net Income (above) Dividend 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) 100,000 3,588,500 (3,000,000) (2,500,000) (31,361,500) 5,000,000 (28,861,500) 20,800,000 51,300,000 (13,161,500) Current Assets Investment in BMI Land Buildings Equipment (net) Goodwill Total Assets 30,500,000 13,161,500 1,500,000 5,600,000 3,100,000 1,700,000 2,360,000 2,960,000 850,000 600,000 (320,000) 880,000 4,050,000 8.560.000 5,740,000 880,000 70,530,000 53,861,500 27,820,000 (3,100,000) Accounts Payable Notes Payable Common Stock Additional Paid-in Capital Retained Earnings (December 31, 2020) Non-Controlling Interest Total Liabilities and Shareholders' Equity (2,900,000) (19,000,000) (28,861,500) (4,900,000) (1,000,000) (6,000,000) (10,870,000) (5,050,000) 6,000,000 10,870,000 (8,000,000) (1,000,000) (2,900,000) (19,000,000) (28,861,500) (10,768,500) (70,530,000) (10,768,500) (53,861,500) (27,820,000)

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