4.) On January 1, 2020, John Doe Enterprises (JDE) acquired a 55% interest in Bu
ID: 2525593 • Letter: 4
Question
4.) 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)
3,700,000
3,300,000
For internal reporting purposes, JDE employed the equity method to account for this investment.
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)
Find the NCI balance on consolidated balance sheet ended 12/31/20.
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)
3,700,000
3,300,000
Explanation / Answer
There are many approcahes to claculate the NCI a) By preparing the consolidated Balance sheet b) By utilising the NCI formula Which is nothing but NCI = Beginning NCI equity Fair Value + NCI’s interest in income – NCI’s share of dividends Opening NCI Equity fair value = 45% of the opening book value => $ 16,970,000 x 45% => $ 7,636,500 NCI’s interest in income => 45% of current year income => $ 79,50,000 x 45% => $ 3,577,500 NCI share of dividends => 45% of the dividends payout => 45% of $30,00,000 => $ 1,350,000 NCI as at 31st December 2020 = $7,636,500 + $3,577,500 - $1,350,000 => $ 9,864,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.