Question

C4-1 The following account balances are for the year ending December 31, 2015 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, 2015	$(   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, 2015	$( 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, 2015 (above)	(   28,861,500)	(      5,050,000)
Total liabilities and stockholders’ equity	$ (53,861,500)	$(   27,820,000)

Required:

Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.

Answer 1

Consolidated Worksheet for the business combination						(All values in $)
BMI Opening Balances as on 1 January 2015 (Date of Acquisition)
Assets		Fair Value		Market Value
Land		1700000		2500000
Buildings		2700000		3400000
Equipment		3700000		3000000
		8100000		8900000
Interest of John Doe in Bubba Manufacturing is 55%
Thus, 55% of the book value =			9333500	$	is JDE's interest
Goodwill is the difference between the fair value of the assets and controlling interest =									1233500	$
Consideration paid by JDE for BMI
Cash				3000000
Shares of JDE Common Stock
Face Value			500000
Premium on Shares			5833500
Consolidated Profit and Loss Account as on 31 December 2015
			$
Manufacturing Revenues			29800000
Cost of Goods Sold			-27100000
Share in Equity of Subsidiary			4361500
Net Income			7061500
Dividends Paid			-2500000
Income trfd to Retained Earnings			4561500
Consolidated Balance Sheet as on 31 December 2015
Assets
Current Assets			30500000
Investment in Subsidiary			11156000
Land			1500000
Buildings			5600000
Goodwill			1233500
Equipment (net)			3100000
Total Assets			53089500
Liabilities
Accounts Payable			3100000
Notes Payable			1000000
Common Stock			2900000
Additional Pay-in Capital			18500000
Retained Earnings			27589500
			53089500