Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $820,575 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $351,675 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $133,000 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	$	(714,210	)		$	(509,000	)
Operating expenses		420,000				363,000
Income of subsidiary		(41,790	)			0
Net income	$	(336,000	)		$	(146,000	)
Retained earnings, 1/1/18	$	(898,000	)		$	(583,000	)
Net income (above)		(336,000	)			(146,000	)
Dividends declared		145,000				60,000
Retained earnings, 12/31/18	$	(1,089,000	)		$	(669,000	)
Current assets	$	489,635			$	460,000
Investment in Atlanta		841,365				0
Land		433,000				236,000
Buildings		712,000				678,000
Total assets	$	2,476,000			$	1,374,000
Liabilities	$	(887,000	)		$	(385,000	)
Common stock		(95,000	)			(300,000	)
Additional paid-in capital		(405,000	)			(20,000	)
Retained earnings, 12/31/18		(1,089,000	)			(669,000	)
Total liabilities and stockholders' equity	$	(2,476,000	)		$	(1,374,000	)

1. 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

ANSWER :-

1) Calculation of Book Value of Atlanta as on 07/01/18 (i.e. at the date of Acquisition) Retained Earnings as on 01/01/18 Add: Net Income for the Half year (146,000/2) 583,000 73,000 Less: Dividend paid for the Half year (60,000/2) (30,000) Retained Earnings as on 07/01/18 626,000 Calculation of Atlanta Book Value as on 07/01/18 Common Stock 300,000 Additional Paid in capital 20,000 Retained Earnings as on 07/01/18 626,000 Book Value as on 07/01/18 946,000 Consideration transferred by Truman Fair value of Non Controlling Interest 820,575 351,675 Fair value of Altanta 1,172,250 Less: Book Value of Atlant (946,000) Fair value in excess of Book Value 226,250 Excess fair value assigned Patents 133,000 Goodwill (Balance) (226,250 133,000) 93,250

Calculation of Amortization Expenses Amortization expense Amortization expense for Life (b) for the year [c] (a/b) half year (c/2) Value Assigned (a) 133,000 Patents 5 26,600 13,300 93,250 NA Goodwill 226,250 13,300 Total 26,600 Adjusted Net Income of Atlanta for the year 2018 Net Income 146,000 Less: Amortization during the year (26,600) Adjusted Net Income during the year 119,400 Adjusted Net Income for the half year (119,400/2) 59,700 Share of Truman in Adjusted half year income (59,700 x 70 %) 41,790 Share of NCI (59,700 x 30% ) 17,910

TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY Consolidation worksheet For Year Ending December 31, 2018 Adjustment Entries Debit Atlanta (509,000) [s] 363,000 [el Truman Credit NCI Consolidated Totals (714,210) (968,710) Revenues 254,500 Operating Expenses Income of Subsidiary 420,000 13,300 181,500 [s] 614,800 (41,790) il 41,790 (336,000) (146,000) Separate company Net Income Consolidated Net Income (353,910) Net Income attributable to NCI (17,910) 17,910 Net Income attributable to Truman (336,000) Retained Eamings 1/1 Net Income (above) Dividends declared (583,000) [s (146,000) (898,000) (336,000) 583,000 (898,000) (336,000) 21,000 [d] 145,000 60,000 9,000 145,000 30,000 [s Retained Earnings 12/31 (1,089,000) (669,000) (1,089,000) 489,635 Current Assets 460,000 949,635 41,790 i 662,200 [s] 158,375 a Investment in Atlanta [d 841,365 21,000 Land 433,000 236,000 669,000 Buildings 712,000 1,390,000 678,000 [a 13,300 [e] Patents 133,000 119,700 Goodwill [al 93,250 93,250 Total Assets 2,476,000 1,374,000 3,221,585 (385,000) (300,000) [s] (20,000 [s (669,000) (887,000) (95,000) (405,000) (1,089,000) Liabilities (1,272,000) Common Stock (95,000) (405,000) (1,089,000) 300,000 Additional paid in capital 20,000 Retained Earnings 12/31 Non Controlling Interest 07/01 283,800 [s] 67,875 a (351,675) Non Controlling Interest 12/31 (360,585) (360,585) Total liabilities and Equity (2,476,000) (1,374,000) (3,221,585) 1,459,840 1,459,840

Entries Explanation is to remove the income from subsidiary by eliminating the Investment Balance [d] is to remove the dividend declared by the Atlanta for the half year (80,000/2) Is] is to remove stockholders' equity by reducing the revenue and expenses to half of Atlanta as on 07/01/18 and allocating to NCI Retained Earnings 01/01/18 Common Stock 583,000 300,000 Additional Paid in Capital Revenues (509,000 /2) Operating expense (363,000 /2) Dividends half year (60,000/2) 20,000 254,500 (181,500) (30,000) Stockholders' Equity as on 12/31/18 946,000 Parent Share (946,000 x 70 % ) 662,200 NCI (946,000 x 30 %) a] is to record the excess value assigned to specific account as on 07/01/18 le] is to record the amortization expenses on patent for the half year 283,800

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