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.

	Truman				Atlanta
Revenues	$	(739,075	)		$	(479,000	)
Operating expenses		403,000				308,000
Income of subsidiary		(50,925	)			0
Net income	$	(387,000	)		$	(171,000	)
Retained earnings, 1/1/18	$	(915,000	)		$	(589,000	)
Net income (above)		(387,000	)			(171,000	)
Dividends declared		150,000				60,000
Retained earnings, 12/31/18	$	(1,152,000	)		$	(700,000	)
Current assets	$	514,575			$	402,000
Investment in Atlanta		859,425				0
Land		444,000				225,000
Buildings		715,000				713,000
Total assets	$	2,533,000			$	1,340,000
Liabilities	$	(881,000	)		$	(320,000	)
Common stock		(95,000	)			(300,000	)
Additional paid-in capital		(405,000	)			(20,000	)
Retained earnings, 12/31/18		(1,152,000	)			(700,000	)
Total liabilities and stockholders' equity	$	(2,533,000	)		$	(1,340,000	)
A. consideration transferred by Truman noncontrolling interest fair value Atlanta's acquisition-date total fair value Book value of Atlanta fair value in excess of book value excess fair value assigned patent goodwill B controlling interest noncontrolling interest goodwill C initial value at acquisition date Truman's share of Atlanta's net income for half year Dividends 2018 investment account balance 12/31/18 D Truman Atlanta debit credit noncontrolling interest consolidated totals revenues (739075) (479000)       operating expenses 403000 308000 net income of subsidiary (50925) separate company net income (387000) (171000) consolidated net income net income attributable to NCI net income attributable to Truman retained earnings 1/1 (915000) (589000) net income (387000) (171000) dividends declared 150000 60000 retained earnings 12/31 (1152000) (700000) current assets 514575 402000 investment in atlanta 859425 land 444000 225000 buildind 715000 713000 patent goodwill total assets 2533000 1340000 liabilities (881000) (320000) common stock (95000) (300000) APIC (405000) (20000) retained earning 12/31 (1152000) (700000) noncontrolling nterest 7/1 noncontrolling interest 12/31 total liabilities and equity (2,533,000) (1,340,000)

Answer 1

Solution:

a.	Consideration transferred by Truman		$829,500
	Noncontrolling interest fair value		355,500
	Atlanta’s acquisition-date total fair value		$1,185,000
	Book value of Atlanta		-1,020,000
	Fair value in excess of book value		$165,000
	Excess fair value assigned to specific		Remaining	Annual excess
	accounts based on fair value		life	amortizations
	Patent		127,500	5		$25,500
	Goodwill		$37,500	indefinite		0
	Total					$25,500

b.

Goodwill allocation with control premium	Controlling	Noncontrolling
	Interest	Interest
Fair values at acquisition date	829,500	$355,500
Relative fair values of identifiable net assets
70% and 30% of $940,000 (acquisition date
book value plus patent = net asset fair value)	803,250	344250
Goodwill	26,250	$11,250

c.

Initial value at acquisition date	$829,500
Truman’s share of Atlanta’s net income for half year
([$171,000 – 25,500 amortization × ½ year] × 70%)	50,925
Dividends 2018 ($60,000 × ½ year × 70%)	-21,000
Investment account balance 12/31/18	$859,425

d.

		TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY
		Consolidation Worksheet
		For Year Ending December 31, 2018
			Truman	Atlanta	Adjustments & Eliminations		NCI	Cons.
		Revenues	-739,075	-479,000	(S)200,000			-870,000
		Operating Expenses	403,000	308,000	(E) 12,750	(S)196,500		527,250
		Net income of subsidiary	-50,925		(I) 50,925			0
		Separate company net income	-387,000	-171,000
		Consolidated net income						-412,425
		Net income attributable to NCI					-25,425	-25,425
		Net income attributable to Truman						-387,000
		Retained earnings, 1/1	-915,000	-589,000	(S) 589,000			-915,000
		Net income (above)	-387,000	-171,000				-387,000
		Dividends declared	150,000	60,000		(S) 30,000	9,000
						(D) 21,000		150,000
		Retained earnings 12/31	-1,152,000	-700,000				-1,152,000
		Current assets	514,575	402,000				916,575
		Investment in Atlanta	859,425		(D) 21,000	(S)588,000		-0-
						(I)   50,925
						(A1) 89,250
						(A2) 26,250
		Land	444,000	225,000				669,000
		Buildings	715,000	713,000				1,428,000
		Patent			(A1)127,500	(E) 12,750		114,750
		Goodwill			(A2) 89,250			89,250
		Total assets	2,533,000	1,340,000				3,217,575
		Liabilities	-881,000	-320,000				-1,201,000
		Common stock	-95,000	-300,000	(S) 300,000			-95,000
		Additional paid‑in capital	-405,000	-20,000	(S) 20,000			-405,000
		Retained earnings 12/31	-1,152,000	-700,000				-1,852,000
		Noncontrolling interest 7/1				(A1) 38,250
						(A2)   11,250	-355,500
						(S) 252,000
		Noncontrolling interest 12/31						-371,925
		Total liab. and equity	-2,533,000	-1,340,000	1,410,425	1,410,425	-371,925	-3,217,575