Question

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, 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 $90,800.

At the end of the year, Calvin reports the following in its financial statements:

Revenues	$	58,200		Machine	$	9,000		Common stock	$	10,000
Expenses		21,000		Other assets		33,200		Retained earnings		32,200
Net income	$	37,200		Total assets	$	42,200		Total equity	$	42,200
Dividends paid	$	5,000

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

SOLUTION:

            Fair value of company (given)                                  $90800

            Book value                                                                 (10,000)

            Fair value in excess of book value                              80800

            To machine ($54480 – $10,000)                         44480 ÷ 10 = $4448 per year

            To process trade secret                                       $80800 ÷   4 =   20200 per year

                                                                                                                   $24648 per year

            Consolidated figures:

· Noncontrolling interest in subsidiary income

= 40% ´ ($58200 revenues less $45648(21000+24648) expenses) = $5020.80

· End-of-year noncontrolling interest:

            Beginning balance (40% ´ $90800)                         $36320   

            Income allocation                                                      5020.80

            Dividend reduction (40% ´ $5,000)                            (2,000)

            End-of-year noncontrolling interest                          $39340.80

· Machine (net) = $49030 ($9,000 book value plus $44480 excess allocation less $4448 excess depreciation for one year).

· Process trade secret (net) = $80800 – $20200 = $60600