Question:
On January 1, 2012, John Doeby Enterprises acquired a 55% interest in BMI, Inc. (BMI). Doeby paid for the transaction with 500,000 shares of Doeby common stock and $3 million cash(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 January 1, 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 related to goodwill. BMI had the subsequent balances on January 1, 2012.
For internal reporting purposes, Doeby employs the equity method to account for this investment.
REQUIRED:
(1) In good form, write a schedule showing the determination of goodwill, and the allocation amounts, and amortization related to Doeby's January 1, 2012 transaction.
(2) Consider that BMI's pre-consolidation balances show subsidiary net income of $625,000 and dividends declared and paid of $130,000, in good form; write the consolidation elimination entries needed at December 31, 2012.
(3) Suppose that on January 1, 2013, Doeby pays $2,000,000 to get another 10% of BMI's outstanding voting stock, in good form, prepare the entry Doeby will record to reflect this additional acquisition.
(4) In good form, create a schedule showing the computation of the non-controlling interest in BMI immediately after Doeby's January 1, 2013 acquisition.