Rolling River Company Acct 510 Consolidation Case File:Rolling River Company – C
ID: 2412722 • Letter: R
Question
Rolling River Company
Acct 510
Consolidation Case
File:Rolling River Company – Consolidation Case
Situation: You have just been hired by Rolling River Company as their accountant. The CEO is excited to have the company’s first 4-year degree accounting major on the team (previously they have only used internal clerical accounting staff supported by an outside consultant). The outside consultant is a CPA and the cost of keeping the CPA was too expensive for month-to-month accounting. In your interview with the CEO you did mention that you had recently completed an advanced accounting class that included accounting for business combinations.
Business Profile: Rolling River Company is a distributor of unique four “4” wheel bicycles that have a 360 degree turning radius. The business currently offers three non-electric bicycles; single rider, two person, and three/four person. Only one rider has the ability to steer but each seated rider has the ability to pedal. The business just completed fiscal year 2016 which was another successful year.
While the company has been growing organically for the past few years the board members (who represent the shareholders) of Rolling River Company do not see enough growth in the existing business and have been pushing the CEO to make a strategic purchase.
Rolling River Company has been in talks to purchase a company in Denmark. The company manufactures one key product, the “Denmark Wheel.” The Denmark Wheel is an electric wheel that can be placed on almost any bike to give riders the choice of either pedaling or simply engaging the electric wheel. The CEO strongly believes this acquisition could double U.S. sales and be a key factor in taking the business international.
Exhibits:
A – Denmark Wheel Company 12/31/16 balance sheet (page 3)
B – Rolling River Company 12/31/16 balance sheet (page 4)
C – Denmark Wheel Company 12/31/17 income statement, statement of retained earnings, and balance sheet (pages 5-6)
D – Rolling River Company 12/31/17 income statement, statement of retained earnings, and balance sheet (pages 7-8)
Note: The 12/31/16 account balances also represent the pre-acquisition 1/1/17 account balances (they are the same).
The CEO has made the following requests:
Request A Prepare the Rolling River Company consolidated balance sheet as of 1/1/17 assuming Rolling River Company purchased 80% of the Denmark wheel Company stock (STOCK ACQUISITION) for $13 million ($1 million in cash and $12 million in Rolling River shares). Note: Rolling River Shares (market value $50/share). Provide enough detail for your CEO to understand the accounting Include the following: 1. Prepare the STOCK ACQUISITION journal entry to record the acquisition (provided by instructor) Debit $13,000,000 Credit 1/1/17Investment in Subsidiary - Denmark Wheel Company Cash Common Stock APIC 1,000,000 240,000 $11,760,000 Purchase 80% of Denmark Wheel Company shares by paying l $1,000,000 cash and issuing to the Denmark Wheel Company shareholders (the 80% that are selling their shares). 240,000 shares $ 50 Market Value $ 1 ParValue 49 APIC 2. 3. 4. Prepare a CAD Prepare the workpaper entries (show separate from the consolidation workpaper) Prepare the 1/1/17 consolidated balance sheet workpaper (DATE OF Acquisition - Chapter 3)Explanation / Answer
The Rolling River, Manitoba water treatment plant was a solution for providing safe drinking water to a First Nations community. The system works to treat raw well water into potable water that’s compliant with strict drinking water standards. The treatment process involves a two-stage filtration system which includes MD-80 catalytic media filtration followed by reverse osmosis and nano-filtration. This system treats well water with flow rates of up to 27.3 m3/hour and works to reduce hardness by over 80%, reduces sodium content by over 50%, and filters out nearly 100% of solids.
The MD-80 catalytic media’s high manganese dioxide content results in higher levels of catalysis for oxidation reactions than other media. The MD-80 in combination with the reverse osmosis and nano-filtration can effectively remove large quantities of solids and dissolved ions from ground water. Projects at Birdtail Sioux and Constance Lake utilise the same filtration technology and has been meeting or exceeding municipal and national standards for drinking water.
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