On January 1, 2006, John Doe Enterprises (JDE) bought a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with $3.5 million cash and 400,000 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 $17.25 per share. Any cost over book value is assigned to goodwill, which is not amortized. BMI had the following balances on January 1, 2006.

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

 

	BOOK	MARKET
	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

The following account balances are for the year ending December 31, 2006 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)	$ -
Non controlling interest in income
Net income	$ (31,361,500)	$ (7,950,000)
Retained earnings, January 1, 2006	$ (2,450,000)	$ (100,000)
Net income (above)	$ (31,361,500)	$ (7,950,000)
Dividends paid	$ 5,000,000	$ 3,000,000
Retained earnings, December 31, 2006	$ (28,811,500)	$ (5,050,000)
Current Assets	$ 30,500,000	$ 20,800,000
Investment in Bubba Manufacturing	$ 13,111,500
Land	1,500,000.00	1,700,000.00
Buildings	5,600,000.00	2,360,000.00
Equipment (net)	3,100,000.00	2,960,000.00
Goodwill
Total assets	53,811,500.00	27,820,000.00
Accounts payable	(3,100,000.00)	(4,900,000.00)
Notes payable		(1,000,000.00)
Non controlling interest
Common stock	(2,900,000.00)	(6,000,000.00)
Additional paid-in capital	(19,000,000.00)	(10,870,000.00)
Retained earnings, Dec. 31, 2006 (above)	(28,811,500.00)	(5,050,000.00)
Total liabilities and stockholders’ equity	(53,811,500.00)	(27,820,000.00)

Required

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

b. Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment. Show the eliminations on the worksheet above. Insert any additional accounts on the worksheet that areneeded.