Question

17 On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $66,312. Calvin Co. has one recorded asset, a specialized production machine with a book value of $14,000 and no liabilities. The fair value of the machine is $100,000, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin's total acquisition date fair value is $110,520. 10 points At the end of the year, Calvin reports the following in its financial statements: Revenues Expenses Net income Dividends paid $ 57,750 24,150 $ 33,600 $ 5,000 Machine Other assets Total assets $ 12,600 30,000 $ 42,600 Common stock Retained earnings Total equity $ 14,000 28,600 $ 42,600 Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin's machine (net of accumulated depreciation), and the process trade secret.

Answer 1

Answer :

Computation of amount to be reported as Calvin's machine

Fair Value of Machine	$100,000
Depreciation	$10,000
Net Value	$90,000
Share of Beckman	60%
Value to be reported	$54,000

Process Trade Secret :

Fair Value of Acquisition	$110,520
Fair Value of Machinery	$100,000
Trade Secret	$10,520
Annual Amortization	$2,630
Ending Value of Trade Secret	$7,890

Computation of Non-Controlling Interest in Subsidiary Income :

Non-Controlling Interest in subsidiary income = Outsider's Interest x (Subsidiary's Income - Excess Fair Value Amortizations)

Subsidiary's Income	$33,600
Excess annual fair value amortizations	$11,230
	$22,370
Outsider's Interest	40%
Non-Controlling Interest in subsidiary income	$8,948

Excess Fair Value Amortizations :

Fair value in excess of book value of machine = $100,000 - 14,000 = $86,000

Excess Amortization of machine = $86,000 / 10 = $8,600

Excess Amortization of Trade secret = $2,630

Total Excess Amortization = $8,600 + 2,630 = $11,230

Computation of Total Non-Controlling Interest :

Beginning balance (40% of 110,520)	$44,208
Non-Controlling Interest in subsidiary income	$8,948
Less : Dividend (40% of 5,000)	($2,000)
Total Non-Controlling Interest	$51,156

So,

Non-Controlling Interest in subsidiary income	$8,948
Total Non-Controlling Interest	$51,156
Calvin's Machine (net accumulated depreciation)	$54,000
Process Trade Secret	$7,890