Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $794,850 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $340,650 both before and after Truman's acquisition In reviewing its acquisition, Truman assigned a $134,500 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 Truman Atlanta (830,065) 487,000 (32,935) (467,000) 346,000 $ Revenues Operating expenses Income of subsidiary 0 $ (121,000) (376,000) Net income Retained earnings, 1/1/18 Net income (above) $ (832,000) (376,000) 175,000 (584,000) (121,000) 80,000 Dividends declared (1,033,000) (625,000) Retained earnings, 12/31/18 511,215 799,785 $ 463,000 Current assets Investment in Atlanta 0 Land 407,000 730,000 269,000 640,000 Buildings $ 1,372,000 $ 2,448,000 Total assets (915,000) (95,000) (405,000) (1,033,000). Liabilities (427,000) (300,000) (20,000) Common stock Additional paid-in capital Retained earnings, 12/31/18 (625,000) $ (1,372,000) $ (2,448,000) Total liabilities and stockholders' equity 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 is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D How did Truman allocate Atlanta's acquisition-date fair value to the various assets acquired and liabilities assumed in the combination? Consideration transferred by Truman 794,850 Noncontrolling interest fair value 340,650 $1,135,500 Atlanta's acquisition-date total fair value (925,000) x Book value of Atlanta 210,500 Fair value in excess of book value Excess fair value assigned: Patent 134,500 76,000 Goodwill Required D Required A Required B Required C How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests? Controlling Noncontrolling Interest Interest Goodwill Required A Required C Required B Required D How did Truman derive the Investment in Atlanta account balance at the end of 2018? Initial value at acquisition date Truman's share of Atlanta's net income for half year Dividends 2018 0 Investment account balance 12/31/18

Answer 1

1) Calculation of Book Value of Atlanta Retained Earnings as on 01/01/18 Add: Net Income for the Half year (121,000/2) Less: Dividend paid for the Half year (80,000/2) as on 07/01/18 (i.e. at the date of Acquisition) 584,000 60,500 (40,000) Retained Earnings as on 07/01/18 604,500 Calculation of Atlanta Book Value as on 07/01/18 Common Stock 300,000 Additional Paid in capital Retained Earnings as on 07/01/18 20,000 604,500 Book Value as on 07/01/18 924,500 Consideration transferred by Truman 794,850 Fair value of Non Controlling Interest 340,650 Fair value of Altanta 1,135,500 Less: Book Value of Atlant (924,500) Fair value in excess of Book Value 211,000 Excess fair value assigned Patents 134,500 Goodwill (Balance) (211,000 134,500) 76,500 Calculation of Amortization Expenses Amortization expense Amortization expense for Value Assigned (a) for the year [c] (a/b) half year (c/2) Life (b) Patents 134,500 5 26,900 13,450 Goodwill 76,500 NA Total 13,450 211,000 26,900

2) Goodwill Allocation Truman Non Controlling Interest 70% Total 30% Fair values at acquisiton date 794,850 340,650 1,135,500 Less: Book Value 647,150 277,350 924,500 Excess of Fair Value Book Value 147,700 211,000 63,300 40,350 Less: Allocation of Excess Value to Specific Assets (patents) 94,150 134,500 Goodwill 76,500 53,550 22,950 Controlling Interest Non controlling Interest Goodwill 53,550 22,950

3) Investment in Atlanta Account Balance Adjusted Net Income of Atlanta for the year 2018 Net Income 121,000 (26,900) Less: Amortization during the year Adjusted Net Income during the year 94,100 Adjusted Net Income for the half year (94,100/2) 47,050 Share of Truman in Adjusted half year income (47,050 x 70 %) Share of NCI (47,050 x 30 % ) 32,935 14,115 Dividend declared by Atlanta for the year 80,000 Half year dividend (80,000/2) 40,000 Share of Truman in Dividend (40,000 x 70%) 28,000 Investment in Atlanta Initial Value at acquisition date 794,850 Truman's Share of Atlanta's net income for half year 32,935 Dividends 2018 (28,000) Investment in Atlanta 799,785

TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY Consolidation worksheet For Year Ending December 31, 2018 Adjustment Entries Credit Atlanta Debit NCI Truman Consolidated Totals (467,000) [s] 346,000 [e (830,065) (1,063,565) Revenues 233,500 Operating Expenses Income of Subsidiary 173,000 [s] 487,000 13,450 673,450 (32,935) 32,935 (376,000) (121,000) Separate company Net Income (390,115) Consolidated Net Income Net Income attributable to NCI (14,115) 14,115 Net Income attributable to Truman (376,000) (584,000) [s] (832,000) (376,000) Retained Earnings 1/1 (832,000) 584,000 Net Income (above) (376,000) (121,000) 28,000 [d] 40,000 s] Dividends declared 175,000 80,000 12,000 175,000 Retained Earnings 12/31 (1,033,000) (1,033,000) (625,000) Current Assets 511,215 463,000 974,215 Investment in Atlanta [d] 28,000 799,785 32,935 647,150 [s] 147,700 [a Land 269,000 407,000 676,000 Buildings 730,000 640,000 1,370,000 13,450 [e] [a] 121,050 Patents 134,500 Goodwill [a] 76,500 76,500 Total Assets 2,448,000 1,372,000 3,217,765

(427,000) (300,000) [s (20,000) [s] (915,000) (95,000) Liabilities (1,342,000) (95,000) (405,000) (1,033,000) Common Stock 300,000 Additional paid in capital (405,000) 20,000 Retained Earnings 12/31 Non Controlling Interest 07/01 (1,033,000) (625,000) 277,350 [s] 63,300 [a (340,650) Non Controlling Interest 12/31 (342,765) (342,765) Total liabilities and Equity (2,448,000) (1,372,000) (3,217,765) 1,422,885 1,422,885 Entries Explanation [i] 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) 07/01/18 and allocating to NCI [s] is to remove stockholders' equity by reducing the revenue and expenses to half of Atlanta as or Retained Earnings 01/01/18 584,000 Common Stock 300,000 Additional Paid in Capital Revenues (467,000/2) Operating expense (346,000/2) Dividends half year (80,000/2) 20,000 233,500 (173,000) (40,000) Stockholders' Equity as on 12/31/18 924,500 Parent Share (924,500 x 70%) 647,150 NCI (924,500 x 30%) 277,350 [a] is to record the excess value assigned to specific account as on 07/01/18 [e] is to record the amortization expenses on patent for the half year