On January 1, 2006, (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid forthe transaction with $3.5 million cash and 400,000 shares of JDE common stock (par value $1.00 per share). At the timeof the acquisition, BMI’s book value was $16,970,000. On January 1, JDE stock had a market value of $17.25 per share. Any cost over book value is assigned to goodwill,which is not amortized. BMI had the following balances on January 1, 2006. For internal reporting purposes, JDE employed the equity method to account for this investment. BOOK MARKETVALUE VALUELand 1,700,000 2,550,000Buildings (seven-year remaining life) 2,700,000 3,400,000Equipment (five-year remaining life) 3,700,000 3,300,000 The following account balances are for the year ending December 31, 2006 for both companies.PART BJohn Doe Bubba ELIMINATIONS CONSOLIDATEDEnterprises Manufacturing RE DEBITS RE CREDITS NC INTEREST TOTALSRevenues (298,000,000) (103,750,000)Expenses 271,000,000 95,800,000Equity in income of Bubba Manufacturing (4,361,500) -Non controlling interest in incomeNet income (31,361,500) (7,950,000) Retained earnings, January 1, 2006 (2,450,000) (100,000)Net income (above) (31,361,500) (7,950,000)Dividends paid 5,000,000 3,000,000Retained earnings, December 31, 2006 (28,811,500) (5,050,000) Current Assets 30,500,000 20,800,000Investment in Bubba Manufacturing 13,111,500 Land 1,500,000 1,700,000Buildings 5,600,000 2,360,000Equipment (net) 3,100,000 2,960,000GoodwillTotal assets 53,811,500 27,820,000 Accounts payable (3,100,000) (4,900,000)Notes payable (1,000,000)Non controlling interestCommon stock (2,900,000) (6,000,000)Additional paid-in capital (19,000,000) (10,870,000)Retained earnings, Dec. 31, 2006 (above) (28,811,500) (5,050,000)Total liabilities and stockholders’ equity (53,811,500) (27,820,000) REQUIRED:A. Prepare a schedule to determine the amortization and allocation amounts.B. Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there isno goodwill impairment
Interest in Bubba Manufacturing
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