Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $792,400 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $339,600 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $125,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years. The following financial information is available for these two companies for 2018. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.

	Truman				Atlanta
Revenues	$	(768,485	)		$	(536,000	)
Operating expenses		418,000				378,000
Income of subsidiary		(46,515	)			0
Net income	$	(397,000	)		$	(158,000	)
Retained earnings, 1/1/18	$	(884,000	)		$	(547,000	)
Net income (above)		(397,000	)			(158,000	)
Dividends declared		155,000				50,000
Retained earnings, 12/31/18	$	(1,126,000	)		$	(655,000	)
Current assets	$	542,585			$	423,000
Investment in Atlanta		821,415				0
Land		404,000				256,000
Buildings		742,000				690,000
Total assets	$	2,510,000			$	1,369,000
Liabilities	$	(884,000	)		$	(394,000	)
Common stock		(95,000	)			(300,000	)
Additional paid-in capital		(405,000	)			(20,000	)
Retained earnings, 12/31/18		(1,126,000	)			(655,000	)
Total liabilities and stockholders' equity	$	(2,510,000	)		$	(1,369,000	)

1. How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?

2. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

3. How did Truman derive the Investment in Atlanta account balance at the end of 2018?

4. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables.

Answer 1

Book1 - Microsoft Excel - X Home Insert Page Layout Formulas Data Review View * Cut Copy ♡ General - Wrap Text Merge & Center 1 1 - 3 Calibri 11 - AA BI U DA Autosum * Paste Format Painter Clipboard Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles 2 Clear Sort & Find & Filter Select Editing Font Alignment Number Cells A121 А G H J F 17,500.00 $ Retianed Earnings 31/12/2018 $-11,26,000.00 $ -6,55,000.00 $-11,26,000.00 4,23,000.00 $ 9,65,585.00 Current Assets Investment in Atlanta $ $ 5,42,585.00 $ 8,21,415.00 $ 17,500.00 $ $ $ $ 6,44,700.00 46,515.00 59,850.00 87,850.00 $ $ 4,04,000.00 $ 7,42,000.00 $ 2,56,000.00 6,90,000.00 Land Building Patent Goodwill Total Assets $ 145 146 12,550.00 $ $ 1,25,500.00 85,500.00 $ 6,60,000.00 $ 14,32,000.00 $ 1,12,950.00 $ 85,500.00 $ 32,56,035.00 $ 25,10,000.00 $ 13,69,000.00 150 Liabilities Common Stock Additional Paid in capital Retained Earnings 31/12/2018 Non Controlling Interest(1/7/2018) $ -8,84,000.00 $ $ -95,000.00 $ $ -4,05,000.00 $ $-11,26,000.00 $ -3,94,000.00 -3,00,000.00 -20,000.00 -6,55,000.00 $ $ 3,00,000.00 20,000.00 $-12,78,000.00 $ -95,000.00 $ -4,05,000.00 $-11,26,000.00 155 $ 25,650.00 $ 37,650.00 $ 2,76,300.00 $ $ $ 14,22,565.00 Non Controlling Interest(31/1/2018)=(-$19935+$7500-$339600) -3,39,600.00 -3,52,035.00 $ -3,52,035.00 $-32,56,035.00 $-25,10,000.00 $ -13,69,000.00 $ 14,22,565.00 157 158 Sheet1 Sheet2 Sheet3 Ready + OD OPAO 100% u 11:01 ENG 20 20-02-2020 W