On January 1, 2012, John Doe Enterprises (JDE) acquired a 55% interest in Bubba

Question

On January 1, 2012, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc. (BMI). 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, BMI's book value was $16,970,000. Doe and BMI's Book Values were:

John Doe: Common Stock 2,400,000 Add paid in cap 12,050,000 Retainined Earnings 2,500,000

BMI: Common Stock 6,000,000 Add Paid in Cap 10,870,000 Retained Earnings 100,000

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. BMI had the following balances on January 1, 2012.

Book Values: Land=1,700,000 Building, net (7 year remaining life)= 2,700,000 Equipment, net 5 year remaining life= 3,700,000

Fair Values: Land= 2,550,000   Building, net (7 year remaining life)= 3,400,000 Equipment, net 5 year remaining life= 3,300,000

1. in good form, prepare a schedule showing the termination of goodwill, and the amortization and allocation amounts, related to doeby's jan. 1, 2012 transaction.

2. Assuming that BMI's preconsolidation balances show subsidiary net income of 625,000 and dividends declared and paid of 130,000, in good for, prepare the consolidation elimination entries needed at Dec. 31, 2012

3. Assume that on Jan 1, 2013, Doeby pays 2,000,000 to acquire another 10% of BMI's outstanding voting stock, in good form, prepare the entry Doeby will record to reflect this additional acquisition.

4. Pepare a schedule showing teh computation of the noncontrolling interest in BMI immediately after Doeby's Jan. 1, 2013 acquisition

Explanation / Answer

investment cost: cash    3,000,000 shares       500,000 total cost    3,500,000 Bookvalue BMI: (16970000*.55) 9,333,500 Reserve 5,833,500 (9333500-3500000) Goodwill 0 non controlling intrest 7,636,500 (16970000*.45) 2) common stock- subsdiary       415,250 (625000+130000)*.55 retained earnings                            415,250 3) investment in subsdiary    2,000,000 cash                        2,000,000 4) Noncontrolling interest: JDE share 11,030,500 (16970000*.65) Noncontrolling interest: 5,939,500 (16970000*0.35)

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