Question
In: Accounting
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $57,756....
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $57,756. 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 $82,500, 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 $96,260.
At the end of the year, Calvin reports the following in its financial statements:
| Revenues | $ | 52,500 | Machine | $ | 9,000 | Common stock | $ | 10,000 | |||
| Expenses | 22,500 | Other assets | 26,000 | Retained earnings | 25,000 | ||||||
| Net income | $ | 30,000 | Total assets | $ | 35,000 | Total equity | $ | 35,000 | |||
| 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.
A. Noncontrolling interest in subsidiary income?
B. Total noncontrolling interest?
C. Calvin's machine (net accumulated depreciation)?
D. Process trade secret?
Solutions
Expert Solution
A)
| Particular | amount |
| Revenue (A) | $52500 |
| Less: expense ($22500 +$7250 + $3440) | $33190 |
| Income | $19310 |
| Non controlling interest percentage | 40% |
| Non controlling interest in subsidiary income | $7724 |
Working note:
Depreciation expense for machine = (fair value - book value )/ useful life
= ($82500-$10000)/10 = $7250
Amortization of process trade secrets = (fair value of machine - machine value)/estimated life
= ($96260-82500)/4 = $3440
.
B)
| Particular | amount |
| Opening balance ($96260×40%) | $38504 |
| Add: income allocation | $7724 |
| Less: dividend paid (5000×40%) | $2000 |
| Total non controlling interest | $44228 |
.
C)
| Particular | amount |
| Opening balance | $9000 |
| Add: excess allocation | $72500 |
| Less: depreciation | ($7250) |
| Closing balance | $74250 |
.
D)
| Particular | amount |
| Book value | $13760 |
| Less: depreciation | ($3440) |
| Process trade secrets | $10320 |
.
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