Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $829,500 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled 355,500 both before and after Truman's acquisition. In reviewing its acquisition, Truman assigned a $127,500 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 Atlanta Revenues Operating expenses Income of subsidiary 739,075)479,000 308,000 403,000 50,925 Net income (387,000) (171,000) Retained earnings, 1/1/18 $(915,000)(589,000) (171,000) 150,00060,000_ (1,152,000) (700,000) Net income (above) Dividends declared (387,000) Retained earnings, 12/31/18 Current assets Investment in Atlanta Land Buildings $514,575 $402,000 859,425 444,000 715. 000 225, 000 713. 000 $ 1,340,000 Total assets Liabilities Common stock Additional paid-in Retained earnings, 12/31/1B $ (881,000) (320,000) 300,000) (20,000) 95,000) (405,000) 152. 000 capital -111 (00.000 Total liabilities and stockholders equity $ (2,533,000) 1,340,000) a. How did Truman allocate Atlanta's acquisition-date fair value to the various assets acquired and liabilities assumed in the combination? b. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests? c. How did Truman derive the Investment in Atlanta account balance at the end of 2018? d. 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

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a.
Consideration transferred by Truman	$   829,500
Non Controlling Interest Fair value	$   355,500
Atlanta's Acquisition date total Fair Value	$1,185,000
Book Value of Atlanta	$ -964,500
Fair Value in Excess of Book Value	$   220,500
Excess Fair Value Assigned		Remaining Life	Amortization
-Patent	$   127,500	5 Year	$                             25,500
-Goodwill	$     93,000
b.
Goodwill Allocation with Control Premium:
		Contorlling Interest	Non- Contorlling Interest
Fair Value at Acquisition date		$                 829,500	$                          355,500
Relative Fair Value of Identifiable Asset		$                 764,400	$                          327,600
(Acquisition data fair value 964500+Patent=Net Fair Value)
Goodwill		$                   65,100	$                             27,900
c.
Initial Value at acquisition date		$                 829,500
Truman's share of Atlant's Net Income for Half Year		$                   50,925
Dividends 2018 (60000*1/2 Year*70%)		$                  -21,000
Investment Accounts Balance 12/31/2018		$                 859,425
Net Income	$   171,000
Less: Amortization	$    -25,500
Net	$   145,500
Net for Half Year	$     72,750
70%	$     50,925
					Consolidation		Non Controlling Interest	Consolidated Totals
d.		Truman	Atlanta	Working	Debit	Credit
Revenue		$                -739,075	$                         -479,000	Half Year	$   239,500			$                -978,575
Operating Expenses		$                 403,000	$                          308,000	Half Year-Credit. Debit is Amortization	$     12,750	$154,000		$                 569,750
Net Income of Subsidiary		$                  -50,925			$     50,925			$                            -
Separate Company Net Income		$                -387,000	$                         -171,000					$                -408,825
Consolidated Net Income
Net Income Attributable to NCI							$                          -21,825	$                    21,825
Net Income Attributable to Truman								$                -387,000
Retained Earning, 1/1		$                -915,000	$                         -589,000		$   589,000			$                -915,000
Net Income (Above)		$                -387,000	$                         -171,000					$                -387,000
Dividends Declared		$                 150,000	$                             60,000	Half year-Credit, Debit is 21000/70*30		$ 30,000	$                             9,000
				From C		$ 21,000		$                 150,000
Retained Earning 12/31		$             -1,152,000	$                         -700,000					$             -1,152,000
Current Assets		$                 514,575	$                          402,000					$                 916,575
Investment in Atlanta		$                 859,425		Book Value 964500*70%	$     21,000	$675,150		$                            -
				Net Income of Subs		$ 50,925
				Patent 127500*70%		$ 89,250
				Goodwill Allocation		$ 65,100
Land		$                 444,000	$                          225,000					$                 669,000
Building		$                 715,000	$                          713,000					$              1,428,000
Patent				Patent and Amortization Half Year	$   127,500	$ 12,750		$                 114,750
Goodwill					$     93,000			$                    93,000
Total Assets		$              2,533,000	$                       1,340,000					$              3,221,325
Liabilities		$                -881,000	$                         -320,000					$             -1,201,000
Common Stock		$                  -95,000	$                         -300,000		$   300,000			$                  -95,000
Additional Paid in Capital		$                -405,000	$                           -20,000		$     20,000			$                -405,000
Retained Earning 12/31		$             -1,152,000	$                         -700,000					$             -1,152,000
Non Controlling Interest 7/1				Patent 127500*30%		$ 38,250
				Goodwill Allocation		$ 27,900
				Book Value 964500*30%		$289,350	$                        -355,500
Non Controlling Interest 12/31							$                        -368,325	$                -368,325
Total Liability Equity		$             -2,533,000	$                      -1,340,000					$             -3,221,325