Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $763,175 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $327,075 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $104,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years.

The following financial information is available for these two companies for 2018. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.

	Truman				Atlanta
Revenues	$	(715,065	)		$	(470,000	)
Operating expenses		441,000				295,000
Income of subsidiary		(53,935	)			0
Net income	$	(328,000	)		$	(175,000	)
Retained earnings, 1/1/18	$	(920,000	)		$	(546,000	)
Net income (above)		(328,000	)			(175,000	)
Dividends declared		140,000				90,000
Retained earnings, 12/31/18	$	(1,108,000	)		$	(631,000	)
Current assets	$	516,390			$	466,000
Investment in Atlanta		785,610				0
Land		412,000				271,000
Buildings		752,000				652,000
Total assets	$	2,466,000			$	1,389,000
Liabilities	$	(858,000	)		$	(438,000	)
Common stock		(95,000	)			(300,000	)
Additional paid-in capital		(405,000	)			(20,000	)
Retained earnings, 12/31/18		(1,108,000	)			(631,000	)
Total liabilities and stockholders' equity	$	(2,466,000	)		$	(1,389,000	)

How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?

How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

How did Truman derive the Investment in Atlanta account balance at the end of 2018?

Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables.

Required A

Required B

Required C

Required D

How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?

A
	Consideration transferred by Truman Noncontrolling interest fair value Atlanta’s acquisition-date total fair value Book value of Atlanta Fair value in excess of book value Excess fair value assigned: Patent Goodwill

B

Required B

Required C

Required D

How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

	Controlling Interest Noncontrolling Interest Goodwill

C

Required C

Required D

How did Truman derive the Investment in Atlanta account balance at the end of 2018?

	Initial value at acquisition date Truman’s share of Atlanta’s net income for half year Dividends 2018 Investment account balance 12/31/18

Answer 1

Part A

Consideration transferred by Truman	$	763175
Non-controlling interest fair value		327075
Atlanta’s acquisition-date total fair value	$	1090250
Book value of Atlanta		(908500)
Fair value in excess of book value	$	181750
Excess fair value assigned to specific accounts based on fair value			Remaining life	Annual excess Amortizations
Patent		104500	5 years	20900
Goodwill	$	77250	indefinite	0
Total				20900

Book value = common stock + additional paid in capital + retained earnings 1/1 + (net income *1/2)

= 300000+20000+546000+((175000-90000)*1/2) = 908500

Goodwill = Fair value in excess of book value-Patent

Part B

	Controlling interest		Non-controlling interest
Fair value at acquisition date	$	763715	$	327075
Relative fair values of identifiable net assets 70% and 30% of $1013000 (acquisition date book value + patent = net asset fair value)		709100		303900
Goodwill	$	54615	$	23175

Part C

Initial value at acquisition date	$	763715
Truman’s share of Atlanta’s net income for half year ([($175,000-20900 amortization) X ½ year] X 70%)		53935
Dividends 2018 ($90,000 X ½ year X 70%)		(31500)
Investment account balance 12/31/18		786150