Question

On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstanding voting shares of Soriano, Inc., in exchange for $31.25 per share cash. The remaining 20 percent of Soriano's shares continued to trade for $30 both before and after Patterson's acquisition At January 1, Soriano's book and fair values were as follows: Remaining Life Current assets Buildings and equipment Trademarks Patented technology Values $ 80,000 1,000,000 900,000 2,000,000 5 years 10 years 4 years Book Values 80,000 1,250,000 700,000 940,000 $2,970,000 180,000 1,500,000 50,000 500,000 740, eee $2,970,000 $ 180,000 1,500,000 Current liabilities Long-term notes payable Common stock Additional paid in Capital Retained earnings In addition, Patterson assigned a $600,000 value to certain unpatented technologies recently developed by Soriano. There

Answer 1

Part A

Patterson’s consideration transferred ($31.25 × 80,000 shares)	$2,500,000
Noncontrolling interest fair value ($30.00 × 20,000 shares)	600,000
Soriano’s total fair value January 1	$3,100,000

Part B

In a business combination, every identifiable asset acquired and liability assumed are initially reported at acquisition-date fair value.

Part D

Soriano’s total fair value January 1		3100000
Soriano’s net assets book value		1290000
Excess acquisition-date fair value over book value		1810000
Adjustments from book to fair values
Buildings and equipment	(250000)
Trademarks	200000
Patented technology	1060000
Unpatented technology	600000	1610000
Goodwill		200000

Part E

Combined revenues	4400000
Combined expenses	(2350000)
Building and equipment excess depreciation	50000
Trademark excess amortization	(20000)
Patented technology amortization	(265000)
Unpatented technology amortization	(200000)
Consolidated net income	$1615000

To noncontrolling interest:
Soriano’s revenues	1400000
Soriano’s expenses	(600000)
Total excess amortization expenses	(435000)
Soriano’s adjusted net income	365000
Noncontrolling interest percentage ownership	20%
Noncontrolling interest share of consolidated net income	73000
To controlling interest:
Consolidated net income	1615000
Noncontrolling interest share of consolidated net income	(73000)
Controlling interest share of consolidated net income	$1542000

Part F

Fair value of noncontrolling interest January	600000
Current year income allocation	73000
Dividends (20% ×$30,000)	(6000)
Noncontrolling interest December 31	$667000

Part G

Change in reported identifiable assets	$0
Goodwill from Soriano acquisition	$0

There is no change in Soriano’s identifiable assets and liabilities as according to the acquisition method requires, the assets of subsidiary should be recognized at their acquisition date fair values. The assessed fair value is not important in that case. Moreover, in case of bargin purchase (2900000-2250000 = $65000), no goodwill is recognized.