A) Complete the journal entries for consolidation on December 31, 2015.
B) Prepare a worksheet to finalize the consolidation of Dewey and Truman
C) If shares had been trading at $14.40 instead of $14.90 and a control premium existed, how would the consolidation change and what journal entries would be impacted? Explain why.
On January 1, 2015, Truman Inc. acquired 55% interest in Dewey Corp. Truman Inc. paid for the transaction with $3,000,000 cash and 500,000 shares of common stock (par value of $1.00 per share). At the time of the acquisition Dewey’s book value was $16,970,000.
On January 1, Truman 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. Truman had the following balances on January 1, 2015:
| Book Value | Fair Value | |
| Land | $1,700,000 | $2,550,000 |
| Buildings (7 year remaining life) | $2,700,000 | $3,400,000 |
| Equipment (5 year remaining life) | $3,700,000 | $3,300,000 |
For internal reporting purposes, Truman employed the equity method to account for this investment.
In 2015, Truman purchased $80,000 of inventory from Dewey costing $40,000. At the end of 2015, Truman held $28,000. Truman still owes Dewey for $65,000.
The following account balances are for the year ending December 31, 2015 for both companies:
| Truman | Dewey | |
| Revenues | ($298,000,000) | ($103,750,000) |
| Expenses | $271,000,000 | $95,800,000 |
| Equity in Income of Dewey Corp. | ($4,361,500) | 0 |
| Net Income | ($31,361,500) | ($7,950,000) |
| Retained Earnings, January 1, 2015 | ($2,500,000) | ($100,000) |
| Net Income (above) | ($31,361,500) | ($7,950,000) |
| Dividends Paid | $5,000,000 | $3,000,000 |
| Retained Earnings, December 31, 2015 | ($28,861,500) | ($5,050,000) |
| Current Assets | $30,500,000 | $20,800,000 |
| Investment in Dewey Corp. | $13,161,500 | |
| Land | $1,500,000 | $1,700,000 |
| Buildings | $5,600,000 | $2,360,000 |
| Equipment (net) | $3,100,000 | $2,960,000 |
| Total Assets | $53,861,500 | $27,820,000 |
| Accounts Payable | ($3,100,000) | ($4,900,000) |
| Notes Payable | ($1,000,000) | |
| Common Stock | ($2,900,000) | (6,000,000) |
| Additional Paid-In Capital | ($19,000,000) | ($10,870,000) |
| Retained Earnings, December 31, 2015 (above) | ($28,861,500) | ($5,050,000) |
| Total Liabilities & Stockholder’s Equity | ($53,861,500) | ($27,820,000) |
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