A) Complete the journal entries for consolidation on December 31, 2015.
B) Prepare a worksheet to finalize the consolidation of Dewey and Truman
C) If shares had been trading at $14.40 instead of $14.90 and a control premium existed, how would the consolidation change and what journal entries would be impacted? Explain why.
On January 1, 2015, Truman Inc. acquired 55% interest in Dewey Corp. Truman Inc. paid for the transaction with $3,000,000 cash and 500,000 shares of common stock (par value of $1.00 per share). At the time of the acquisition Dewey's book value was $16,970,000.
On January 1, Truman 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. Truman had the following balances on January 1, 2015:
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Book Value
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Fair Value
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Land
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$1,700,000
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$2,550,000
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Buildings (7 year remaining life)
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$2,700,000
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$3,400,000
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Equipment (5 year remaining life)
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$3,700,000
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$3,300,000
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For internal reporting purposes, Truman employed the equity method to account for this investment.
In 2015, Truman purchased $80,000 of inventory from Dewey costing $40,000. At the end of 2015, Truman held $28,000. Truman still owes Dewey for $65,000.
The following account balances are for the year ending December 31, 2015 for both companies:
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Truman
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Dewey
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Revenues
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($298,000,000)
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($103,750,000)
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Expenses
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$271,000,000
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$95,800,000
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Equity in Income of Dewey Corp.
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($4,361,500)
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0
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Net Income
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($31,361,500)
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($7,950,000)
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|
|
|
|
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Retained Earnings, January 1, 2015
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($2,500,000)
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($100,000)
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Net Income (above)
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($31,361,500)
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($7,950,000)
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Dividends Paid
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$5,000,000
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$3,000,000
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Retained Earnings, December 31, 2015
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($28,861,500)
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($5,050,000)
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|
|
|
|
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Current Assets
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$30,500,000
|
$20,800,000
|
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Investment in Dewey Corp.
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$13,161,500
|
|
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Land
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$1,500,000
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$1,700,000
|
|
Buildings
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$5,600,000
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$2,360,000
|
|
Equipment (net)
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$3,100,000
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$2,960,000
|
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Total Assets
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$53,861,500
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$27,820,000
|
|
|
|
|
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Accounts Payable
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($3,100,000)
|
($4,900,000)
|
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Notes Payable
|
|
($1,000,000)
|
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Common Stock
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($2,900,000)
|
(6,000,000)
|
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Additional Paid-In Capital
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($19,000,000)
|
($10,870,000)
|
|
Retained Earnings, December 31, 2015 (above)
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($28,861,500)
|
($5,050,000)
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|
Total Liabilities & Stockholder's Equity
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($53,861,500)
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($27,820,00
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