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	)

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

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

	Controlling Interest Noncontrolling Interest Goodwill

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) Less: Dividend paid for the Half year (60,000/2) 583,000 73,000 (30,000) Retained Earnings as on 07/01/18 626,000 n07/01/18 Calculation of Atlanta Book Value as on Common Stock Additional Paid in capital Retained Earnings as on 07/01/18 Book Value as on 07/01/18 300,000 20,000 626,000 946,000 Consideration transferred by Truman Fair value of Non Controlling Interest Fair value of Altanta 820,575 351,675 1,172,250 Less: Book Value of Atlant (946,000) Fair value in excess of Book Value 226,250 Excess fair value assigned 133,000 Patents Goodwill (Balance) (226,250 133,000) 93,250

b) Goodwill Allocation Non Controlling Interest Controlling Interest Total 70% 30% Fair values at acquisiton date 820,575 351,675 1,172,250 Less: Book Value 283,800 662,200 946,000 Excess of Fair Value Book Value Less: Allocation of Excess Value to Specific Assets (patents) 226,250 158,375 67,875 93,100 39,900 133,000 Goodwill 65,275 27,975 93,250 Controlling Interest Noncontrolling Interest Goodwill 27,975 65,275