Question
On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $764,050 in cash and equity securities.
| On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $764,050 in cash and equity securities. The remaining 30 percent of Atlantas shares traded closely near an average price that totaled $327,450 both before and after Trumans acquisition. |
| In reviewing its acquisition, Truman assigned a $108,000 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 | $ | 693,510 | $ | 445,000 | ||
| Income of subsidiary | 35,490 | |||||
| Operating expenses | (421,000 | ) | (322,000 | ) | ||
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| Net income | $ | 308,000 | $ | 123,000 | ||
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| Retained earnings, 1/1/15 | $ | 849,000 | $ | 567,000 | ||
| Net income | 308,000 | 123,000 | ||||
| Dividends declared | (160,000 | ) | (90,000 | ) | ||
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| Retained earnings, 12/31/15 | $ | 997,000 | $ | 600,000 | ||
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| Current assets | $ | 411,960 | $ | 408,000 | ||
| Investment in Atlanta | 768,040 | |||||
| Land | 470,000 | 246,000 | ||||
| Buildings | 726,000 | 633,000 | ||||
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| Total assets | $ | 2,376,000 | $ | 1,287,000 | ||
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| Liabilities | $ | 879,000 | $ | 367,000 | ||
| Common stock | 95,000 | 300,000 | ||||
| Additional paid-in capital | 405,000 | 20,000 | ||||
| Retained earnings | 997,000 | 600,000 | ||||
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| Total liabilities and stockholders' equity | $ | 2,376,000 | $ | 1,287,000 | ||
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| a. | How did Truman allocate Atlantas acquisition-date fair value on 7/1/15 to the various assets acquired and liabilities assumed in the combination? |
| b. | How did Truman allocate the goodwill from the acquisition on 7/1/15 across the controlling and noncontrolling interests? |
| c. | How did Truman derive the Investment in Atlanta account balance at the end of 2015? |
| d. | Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2015. (Do not leave any cells blank. Enter only positive number in the Consolidation Worksheet Adjustments debit and credit columns for the controlling interest and zeros in cells where appropriate. Credit amounts should be preceded by an minus sign in the NCI column.) |
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