Question

In: Accounting

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $48,900....

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $48,900. Calvin Co. has one recorded asset, a specialized production machine with a book value of $15,600 and no liabilities. The fair value of the machine is $68,100, 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 $81,500. At the end of the year, Calvin reports the following in its financial statements: Revenues $ 55,350 Machine $ 14,040 Common stock $ 10,000 Expenses 22,650 Other assets 23,660 Retained earnings 27,700 Net income $ 32,700 Total assets $ 37,700 Total equity $ 37,700 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.

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Expert Solution

Answer:-

Given information,

outstanding stock of Calvin = $48,900

Fair value = $81,500

Book value = $15,600

machine = $68,100

Useful life = 10 years

Estimated future life = 4 years

  • Now we need to findout the Fair value of excess of book value , fair value of machine , Process trade secret.

Fair value of excess of book value = $81,500 - $15,600

= $65,900

Fair value of excess of book value = $65,900

Fair value of machine = [ $68,100 - $15,600 ] / 10 years

= 52,500 / 10

= $5,250

Fair value of machine = $5,250

Process trade secret = [ $65,900 - 52,500 ] / 4years

= 13,400 / 4

= $3,350

Process trade secret = $3,350

Consolidated figures:-

Particulars Amount
Net income attributable to noncontrolling interest

= [ 55,350 - 22,650 ] * [ 100% - 60% ]

= 32,700 * 40%

= $13,080

End- of- year Noncontrolling interest :-
Beginning balance

= [ 100% - 60% ] * 81,500

= 40% * 81,500

= 0.40 * 81,500

= $32,600

Net income allocation $13,080
Dividend reduction

= [ 100% - 60% ] * 5,000

= 40% * 5,000

= 0.40 * 5,000

= $2,000

End- of- year Noncontrolling interest

= [32,600 + $13,080 ] - 2,000

= 45,680 - 2,000

= $43,680

Calvin's machine

= $14,040 + [ $68,100 - $15,600 ] - 5,250

= 14,040 + 52,500 - 5,250

= 66,540 - 5,250

= $61,290

Process trade secret

=  [ $65,900 - 52,500 ] - 3,350

= 13,400 - 3,350

= $10,050


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