Question

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $64,788. Calvin Co. has one recorded asset, a specialized production machine with a book value of $14,900 and no liabilities. The fair value of the machine is $94,900, 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 $107,980. At the end of the year, Calvin reports the following in its financial statements: Revenues $ 61,050 Machine $ 13,410 Common stock $ 10,000 Expenses 23,400 Other assets 29,240 Retained earnings 32,650 Net income $ 37,650 Total assets $ 42,650 Total equity $ 42,650 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

            Fair value of company (given)                       $107,980

            Book value                                                             (14,900)

            Fair value in excess of book value                    93,080

            to machine ($94,900 – $14,900)                        80,000 ÷ 10 = $8,000 per year

            to process trade secret                                    $13,080 ÷   4 =   3,270 per year

                                                                                                                          $11,270 per year

            Consolidated figures:

·         Noncontrolling interest in subsidiary income

= 40% ´ ($61,050 revenues less $34,670 expenses) = $10,552

·         End-of-year noncontrolling interest:

            Beginning balance (40% ´ $107,980)             $43,192           

            Income allocation                                                  10,552

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

            End-of-year noncontrolling interest               $51,744

·         Machine (net) = $85,410 ($13,410 book value plus $80,000 excess allocation less $8,000 excess depreciation for one year).

·         Process trade secret (net) = $13,080 – $3,270 = $9,810