On January 1, 2021, Ackerman Company acquires 80% of Seidel Company for $1,712,000 in cash consideration....

On January 1, 2021, Ackerman Company acquires 80% of Seidel Company for $1,712,000 in cash consideration. The remaining 20 percent noncontrolling interest shares had an acquisition-date estimated fair value of $428,000. Seidel’s acquisition-date total book value was $1,700,000.

The fair value of Seidel’s recorded assets and liabilities equaled their carrying amounts. However, Seidel had two unrecorded assets—a trademark with an indefinite life and estimated fair value of $245,000 and several customer relationships estimated to be worth $180,000 with four-year remaining lives. Any remaining acquisition-date fair value in the Seidel acquisition was considered goodwill.

During 2021, Seidel reported $172,000 net income and declared and paid dividends totaling $50,000. Also in 2021, Ackerman reported $350,000 net income, but neither declared nor paid dividends.

Calculate the annual amortization associated with this acquisition

The parent Ackerman will consolidate 100% of the assets and liabilities of Seidel since it *controls* them
through its 80% ownership.

To balance the consolidated books, a line item for the *noncontrolling interest of 20%* must be included in
consolidated stockholders' equity.

Let's analyze the balance in this new *equity account* as of *12/31/21*. Fill in the amounts indicated.

	-	+
	Noncontrolling Interest
			Beginning balance at 1/1/21: remember that
			the acquisition method calls for fair value for all
			aspects of the transaction at the acquisition date.

			The NCI's share of the subsidiary's net income

The NCI's share of amortization related to
this subsidiary

The NCI's share of the dividends declared by
the subsidiary

			Ending balance at 12/31/21: notice that this
			account's activity *parallels* that of the parent's
			investment account when the equity method* is*
			used.

Solutions

Expert Solution

Answer :

a. Acquisition-date fair value of noncontrolling interest (NCI) $428,000

Consolidated net income to NCI:

Seidel net income $172,000

Excess amortization customer relationships

($180,000 ÷ 4 years) (45,000)

Adjusted subsidiary net income $127,000

Noncontrolling interest percentage 20%

b. Consolidated net income to NCI 25,400

c. Dividend allocation to NCI (20% × $50,000) (10,000)

d. NCI in Seidel 12/31/18 $443,400

Alternative calculations:

NCI share of Seidel 1/1/21 book value (20% × $1,700,000) $340,000

NCI share of acquisition-date fair value allocations:

To trademark (20% × $245,000) $49,000

To customer relationships (20% × $180,000) 36,000

To goodwill (20% × $15,000) 3,000 $ 88,000

a. Acquisition-date fair value of Seidel NCI $428,000

b. Consolidated net income to NCI 25,400

c. Dividend allocation to NCI (20% × $50,000) (10,000)

d. NCI in Seidel 12/31/21 $443,400

ekkarill92 answered 1 year ago

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