Question

West Company acquired 60 percent of Solar Company for $304,500 when Solar’s book value was $404,500. The newly comprised 40 percent non-controlling interest had an assessed fair value of $203,000. Also at the acquisition date, Solar had a trademark (with a 20-year life) that was undervalued in the financial records by $63,000. Also, patented technology (with a 10-year life) was undervalued by $43,000. Two years later, the following figures are reported by these two companies (stockholders’ equity accounts have been omitted):

	West Company Book Value				Solar Company Book Value				Solar Company Fair Value
Current assets	$	623,000			$	303,000			$	323,000
Trademarks		263,000				203,000				283,000
Patented technology		413,000				153,000				153,000
Liabilities		(393,000	)			(123,000	)			(123,000	)
Revenues		(903,000	)			(403,000	)
Expenses		497,000				303,000
Investment income		Not given

What is the consolidated trademarks balance?

Answer 1

Solution:

West Company holds 60% share in Solar Company. Therefore while preparing the consolidated Balance Sheet, the balance of consolidated trademarks will be as under-  

	West's own trademarks	$ 263,000
Add:	Book Value of Solar's trademark	$ 203,000
Add:	Correction of undervalued trademarks	$ 63,000
Less:	Amortization of trademark previously undervalued (Working)	$ 6,300
	Consolidated balance of Trademarks	$ 522,700

Workings:

Trademarks are to be amortized over their life. Calculation of amortization on undervalued trademarks is $ 63,000 x 2/20 = $ 6,300