Question
On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $767,200 in cash and equity securities.
On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $767,200 in cash and equity securities. The remaining 30 percent of Atlantas shares traded closely near an average price that totaled $328,800 both before and after Trumans acquisition. In reviewing its acquisition, Truman assigned a $138,500 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 2015. In addition, the subsidiarys income was earned uniformly throughout the year. Subsidiary dividend payments were made quarterly.
Truman | Atlanta | ||||||||||
Revenues | $ | (761695) | $ | 497,000 | |||||||
Income of subsidiary | (39305) | ||||||||||
Operating expenses | 489000 | 357000 | |||||||||
Net income | $ | (312000) | $ | (140000) | |||||||
Retained earnings, 1/1/15 | $ | (883000) | $ | (516000) | |||||||
Net income | (312000) | (140000) | |||||||||
Dividends declared | 140000 | 70000 |
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Retained earnings, 12/31/15 | $ | (1055000) | $ | (586000) | |||||||
Current assets | $ | 484995 | $ | 433000 | |||||||
Investment in Atlanta | 782005 | ||||||||||
Land | 431000 | 233000 | |||||||||
Buildings | 749000 | 659000 | |||||||||
Total assets | $ | 2447000 | $ | 1325000 | |||||||
Liabilities | $ | (892000) | $ | (419000) | |||||||
Common stock | (95,000) | (300,000) | |||||||||
Additional paid-in capital | (405,000) | (20,000) | |||||||||
Retained earnings | (1055000) | (586000) | |||||||||
Total liabilities and stockholders' equity | $ | (2447000) | $ | (1325000) |
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1. How did Truman allocate Atlantas acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?
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