Question

On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstanding voting shares of Soriano, Inc., in exchange for $31.25 per share cash. The remaining 20 percent of Soriano’s shares continued to trade for $30 both before and after Patterson’s acquisition.

At January 1, Soriano’s book and fair values were as follows

	Book Values	Fair Values	Remaining Life
Current assets	$80,000	$80,000
Buildings and equipment	$1,250,000	$1,000,000	5 years
Trademarks	$700,000	$900,000	10 years
Patented technology	$940,000	$2,000,000	4 years
	$2,970,000
Current liabliities	$180,000	$180,000
Long-term notes payable	$1,500,000	$1,500,000
Common stock	$50,000
Additional paid-in capital	$500,000
Reatained earnings	$740,000 $2,970,000

In addition, Patterson assigned a $600,000 value to certain unpatented technologies recently developed by Soriano. These technologies were estimated to have a 3-year remaining life.

During the year, Soriano declared a $30,000 dividend for its shareholders. The companies reported the following revenues and expenses from their separate operations for the year ending December 31.

	Patterson	Soriano
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$3,000,000	$1,400,000
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,750,000	600,000

a.What total value should Patterson assign to its Soriano acquisition in its January 1 consolidated balance sheet?

b.What valuation principle should Patterson use to report each of Soriano’s identifiable assets and liabilities in its January 1 consolidated balance sheet?

c.For years subsequent to acquisition, how will Soriano’s identifiable assets and liabilities be valued in Patterson’s consolidated financial statements?

d.How much goodwill resulted from Patterson’s acquisition of Soriano?

e.What is the consolidated net income for the year and what amounts are allocated to the controlling and noncontrolling interests?

f.What is the noncontrolling interest amount reported in the December 31 consolidated balance sheet?

g.Assume instead that, based on its share prices, Soriano’s January 1 total fair value was assessed at $2,250,000. How would the reported amounts for Soriano’s net assets change on Patterson’s acquisition-date consolidated balance sheet?

Answer 1

a. According to the acquisition method it denotes that the company Patterson Corporation should assign the sum of the acquisition price and the non-controlling interest for acquisition.

Patterson’s Consideration transferred ($31.25 X 80,000 shares) = $2,500,000

Non-controlling interest fair value ($30 X 20,000 shares) = $600,000

Soriano’s total fair value January 1 = $3,100,100

b. All the identifiable assets and liabilities acquired during business combinations is initially reported at its acquisition date fair value.

c. Except for some financial items, Soriano’s assets and liabilities are not continually adjusted for changing fair values. In years subsequent to acquisition, Soriano’s assets and liabilities are reported at their book value adjusted for acquisition date fair value allocations and for subsequent amortization and depreciation on those allocations

d.  

Soriano’s total fair value January 1		$3,100,000
Soriano’s net assets book value		$1,290,000
Excess acquisition date fair value over book value		$1.810,000
Adjustments from book to fair values:
Buildings and Equipments	($250,000)
Trademarks	$200,000
Patented Technology	$1,060,000
Unpatented Technology	$600,000	$1,610,000
Goodwill		$200,000