Question:
On 1st January, 2012, John Doeby Enterprises acquired a 55% interest in BMI, Inc. (BMI). Doeby paid for the transaction with $3 million cash and 500,000 shares of Doeby common stock (par value $1.00 per share). At the time of the acquisition, Doeby's and BMI's book values were:
Doeby BMI
Common Stock 2,400,000 6,000,000
Additional Paid-In Capital in Excess of Par 12,050,000 10,870,000
Retained Earnings 2,500,000 100,000
Book Value Fair Value
Land 1,700,000 2,550,000
Buildings, net (7-years remaining life) 2,700,000 3,400,000
Equipment, net (5-years remaining life) 3,700,000 3,300,000
On 1st January, 2012 Doeby common 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 1st January, 2012.
For internal reporting purposes, Doeby employs the equity method to account for this investment.
REQUIRED:
(1) In good form, purpose a schedule showing the determination of goodwill, and the allocation amounts and amortization, related to Doeby's 1st January, 2012 transaction.
(2) Consider that BMI's pre-consolidation balances illustrate subsidiary net income of $625,000 and dividends declared and paid of $130,000, in good form, purpose the consolidation elimination entries needed at December 31, 2012.
(3) Suppose that on January 1, 2013, Doeby pays $2,000,000 to acquire another 10% of BMI's outstanding voting stock, in good form, purpose the entry Doeby will record to reflect this additional acquisition.
(4) In good form, purpose a schedule showing the computation of the noncontrolling interest in BMI immediately after Doeby's January 1, 2013 acquisition.