On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Bubba
ID: 2803932 • Letter: O
Question
On January 1, 2020, 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.
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, 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)
**CALCULATE THE NCI**
The following account balances are for the year ending December 31, 2020 for both companies.
John Doe
Bubba
Enterprises
Manufacturing
Revenues
$(298,000,000)
$(103,750,000)
Expenses
271,000,000
95,800,000
Equity in income of Bubba Manufacturing
( 4,361,500)
0
Net income
$( 31,361,500)
$( 7,950,000)
Retained earnings, January 1, 2020
$( 2,500,000)
$( 100,000)
Net income (above)
( 31,361,500)
( 7,950,000)
Dividends paid
5,000,000
3,000,000
Retained earnings, December 31, 2020
$( 28,861,500)
$( 5,050,000)
Current Assets
$ 30,500,000
$ 20,800,000
Investment in Bubba Manufacturing
13,161,500
Land
1,500,000
1,700,000
Buildings
5,600,000
2,360,000
Equipment (net)
3,100,000
2,960,000
Total assets
$ 53,861,500
$ 27,820,000
Accounts payable
$( 3,100,000)
$ (4,900,000)
Notes payable
( 1,000,000)
Common stock
( 2,900,000)
( 6,000,000)
Additional paid-in capital
( 19,000,000)
( 10,870,000)
Retained earnings, Dec. 31, 2020 (above)
( 28,861,500)
( 5,050,000)
Total liabilities and stockholders’ equity
$ (53,861,500)
$( 27,820,000)
REQUIREMENT: FIND NCI
3,700,000
3,300,000
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)
**CALCULATE THE NCI**
The following account balances are for the year ending December 31, 2020 for both companies.
John Doe
Bubba
Enterprises
Manufacturing
Revenues
$(298,000,000)
$(103,750,000)
Expenses
271,000,000
95,800,000
Equity in income of Bubba Manufacturing
( 4,361,500)
0
Net income
$( 31,361,500)
$( 7,950,000)
Retained earnings, January 1, 2020
$( 2,500,000)
$( 100,000)
Net income (above)
( 31,361,500)
( 7,950,000)
Dividends paid
5,000,000
3,000,000
Retained earnings, December 31, 2020
$( 28,861,500)
$( 5,050,000)
Current Assets
$ 30,500,000
$ 20,800,000
Investment in Bubba Manufacturing
13,161,500
Land
1,500,000
1,700,000
Buildings
5,600,000
2,360,000
Equipment (net)
3,100,000
2,960,000
Total assets
$ 53,861,500
$ 27,820,000
Accounts payable
$( 3,100,000)
$ (4,900,000)
Notes payable
( 1,000,000)
Common stock
( 2,900,000)
( 6,000,000)
Additional paid-in capital
( 19,000,000)
( 10,870,000)
Retained earnings, Dec. 31, 2020 (above)
( 28,861,500)
( 5,050,000)
Total liabilities and stockholders’ equity
$ (53,861,500)
$( 27,820,000)
REQUIREMENT: FIND NCI
3,700,000
3,300,000
Explanation / Answer
On acquisition:
during the year:
Movement in ivnestment and NCI:
hence NCI at year end= 10768500
NCI share of net income:
Fair value of consideration given: Ref Particulars Amount Stock 74,50,000 Cash 30,00,000 a Total consideration 1,04,50,000 b Stake acquired 55% c=a/b Fair value of subsidiary 1,90,00,000 d=100%-b Minority interest 45% e=c*d Fair value of minority interest 85,50,000Related Questions
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