On January 1, 2011, John Doe Enterprises (JDE) Acquired a 55

question 39

Essay

On January 1, 2011, John Doe Enterprises (JDE) acquired a 55% interest in Bubba Manufacturing, Inc. (BMI). JDE paid for the transaction with $3 million cash and 500,000 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 $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 January 1, 2011. $\begin{array}{lrr}&\text { Book } & \text { Fair } \\&\text { Value } & \text { Value } \\\text { Land } & \$ 1,700,000 & \$ 2,550,000 \\\text { Buildings (seven-year remaining life) } & 2,700,000 & 3,400,000 \\\text { Equipment (five-year remaining life) } & 3,700,000 & 3,300,000\end{array}$ For internal reporting purposes, JDE employed the equity method to account for this investment.
-McLaughlin, Inc. acquires 70 percent of Ellis Corporation on September 1, 2010, and an additional 10 percent on November 1, 2011. Annual amortization of $8,400 attributed to the controlling interest relates to the first acquisition. Ellis reports the following figures for 2011: $$\begin{array} { l r } \text { Revenues } & \$ 500,000 \\\text { Expenses } & 350,000 \\\text { Retained earnings, 1/1/11 } & 3,500,000 \\\text { Dividends paid } & 40,000 \\\text { Common stock } & 400,000\end{array}$$
Without regard for this investment, McLaughlin earns $480,000 in net income ($840,000 revenues less $360,000 expenses; incurred evenly through the year) during 2011.
Required: Prepare a schedule of consolidated net income and apportionment to noncontrolling and controlling interests for 2011.

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Definitions:

Null Hypothesis

A statement used in statistical testing which proposes that no significant difference or effect exists between certain characteristics of a population.

Type I Error

The error of rejecting a true null hypothesis, also known as a "false positive."

Null Hypothesis

An assertion or proposition in statistics that indicates no significant difference or effect, serving as the default assumption to test against.

Type II Error

The error that occurs when the null hypothesis is falsely accepted, failing to detect an effect or difference when one actually exists.