A+ Answers

On January 1, 2011, John Doe Enterprise (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with 1,371,276 cash and 228,546 shares of JDE common stock (par value $1.00 per share). At the time of the acquisition, BMI’s book value was 7,756,849.

On January 1, JDE stock had a market value of $14.90 per share and there was no control premium in this transaction. Any unidentifiable consideration transferred over book value is assigned to good will. BMI had the following balances on January 1, 2011.

Book Value Fair Value

Land 777,056 1,165,584

Buildings (seven-year remaining life) 1,234,148 1,554,112

Equipment (five-year remaining life) 1,691,240 1,508,403

For internal reporting purposes, JDE employed the equity method to account for this investment.

Required:

a. Prepare a schedule to determine goodwill and the amortization and allocation amounts.

b. Verify (show calculation) that the Investment in Bubba account balance on 12