Question

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $58,704. Calvin Co. has one recorded asset, a specialized production machine with a book value of $13,100 and no liabilities. The fair value of the machine is $85,600, 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 $97,840.

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

Revenues	$	61,650		Machine	$	11,790		Common stock	$	13,100
Expenses		29,250		Other assets		28,710		Retained earnings		27,400
Net income	$	32,400		Total assets	$	40,500		Total equity	$	40,500
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):

process trade secret:

Answer 1

Fair value of company (given)                       $97,840

            Book value                                                             (13,100)

            Fair value in excess of book value 84,740

            to machine ($85,600 – $13,100) 72,500 ÷ 10 = $7,250 per year

            to process trade secret                                    $12,240 ÷   4 =   3,060 per year

                                                                                                                          $10,310 per year

            Consolidated figures:

·         Noncontrolling interest in subsidiary income

= 40% ´ ($61,650 revenues less $39560 expenses) = $8,836

·         End-of-year noncontrolling interest:

            Beginning balance (40% ´ $97,840)             $39,136

            Income allocation 8,836

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

            End-of-year noncontrolling interest               $45,972

·         Machine (net) = $77,040 ($11,790 book value plus $72,500 excess allocation less $7250 excess depreciation for one year).

·         Process trade secret (net) = $12,240 – $3,060 = $9,180