In: Accounting
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.
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
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 |