Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $788,900 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $338,100 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $129,500 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 2018. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.

	Truman				Atlanta
Revenues	$	(785,065	)		$	(533,000	)
Operating expenses		486,000				333,000
Income of subsidiary		(60,935	)			0
Net income	$	(360,000	)		$	(200,000	)
Retained earnings, 1/1/18	$	(911,000	)		$	(535,000	)
Net income (above)		(360,000	)			(200,000	)
Dividends declared		170,000				70,000
Retained earnings, 12/31/18	$	(1,101,000	)		$	(665,000	)
Current assets	$	392,665			$	415,000
Investment in Atlanta		825,335				0
Land		435,000				283,000
Buildings		775,000				697,000
Total assets	$	2,428,000			$	1,395,000
Liabilities	$	(827,000	)		$	(410,000	)
Common stock		(95,000	)			(300,000	)
Additional paid-in capital		(405,000	)			(20,000	)
Retained earnings, 12/31/18		(1,101,000	)			(665,000	)
Total liabilities and stockholders' equity	$	(2,428,000	)		$	(1,395,000	)

a.How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?

b.How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

c.How did Truman derive the Investment in Atlanta account balance at the end of 2018?

d.Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables.

a.

How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?

Consideration transferred by Truman
Noncontrolling interest fair value
Atlanta’s acquisition-date total fair value
Book value of Atlanta
Fair value in excess of book value
Excess fair value assigned:
Patent
Goodwill

b. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

	Controlling Interest	Noncontrolling Interest
Goodwill

c. How did Truman derive the Investment in Atlanta account balance at the end of 2018?

Initial value at acquisition date
Truman’s share of Atlanta’s net income for half year
Dividends 2018
Investment account balance 12/31/18

d. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

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TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY
Consolidation Worksheet
For Year Ending December 31, 2018
	Truman	Atlanta	Consolidation Entries		Noncontrolling	Consolidated
	Company	Company	Debit	Credit	Interest	Totals
Revenues	$(785,065)	$(533,000)
Operating expenses	486,000	333,000
Net income of subsidiary	(60,935)
Separate company net income	$(360,000)	$(200,000)
Consolidated net income
Net income attributable to NCI
Net income attributable to Truman
Retained earnings, 1/1	$(911,000)	$(535,000)
Net income	(360,000)	(200,000)
Dividends declared	170,000	70,000
Retained earnings 12/31	$(1,101,000)	$(665,000)
Current assets	$392,665	$415,000
Investment in Atlanta	825,335
Land	435,000	283,000
Buildings	775,000	697,000
Patent
Goodwill
Total assets	$2,428,000	$1,395,000
Liabilities	$(827,000)	$(410,000)
Common stock	(95,000)	(300,000)
Additional paid in capital	(405,000)	(20,000)
Retained earnings 12/31	(1,101,000)	(665,000)
Noncontrolling interest 7/1
Noncontrolling interest 12/31
Total liabilities and equity	$(2,428,000)	$(1,395,000)

Answer 1

a.         Consideration transferred by Truman ...........     $788,900

            Noncontrolling interest fair value ....................        338,100

            Atlanta’s acquisition-date total fair value........ $1,127,000

            Book value of Atlanta...........................................     (920,000)

            Fair value in excess of book value...................     $207,000           Annual Excess

            Excess fair value assigned                                                         Life     Amortizations

               Patent   ................................................................        129,500   5 years     $25,900

               Goodwill ..............................................................        $77,500   indefinite          -0-

            Total        .................................................................                                            $25,900

b.        Goodwill allocation with control premium                     Controlling Noncontrolling

                                                                                                                    Interest            Interest

            Fair values at acquisition date                                             $788,900         $338,100

            Relative fair values of identifiable net assets

            70% and 30% of $1,049,500 (acquisition date

            book value plus patent = net asset fair value)             734,650            314,850

            Goodwill                                                                                      $ 54,250         $   23,250

c.         Initial value at acquisition date                                                    $788,900

            Truman’s share of Atlanta’s income for half year                                  

                  ([$200,000 – 25,900 amortization × ½ year] × 70%)                60,935

            Dividends 2018 ($70,000 × ½ year × 70%)                                    (24,500)

            Investment account balance 12/31/18                                       $825,335

d. Consolidated Worksheet

TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY

Consolidation Worksheet

For Year Ending December 31, 2018

	Truman	Atlanta	Adjustments & Eliminations		NCI	Cons.
Revenues	(785,065)	(533,000)	(S)266,500			(1,051,565)
Operating Expenses	486,000	333,000	(E) 12,950	(S)166,500		665,450
Income of subsidiary	(60,935)		(I) 60,935			-0-
Separate company net income	(303,000)	(120,000)
Consolidated net income						(386,115)
NCI in Atlanta's income					(26,115)	26,115
Controlling interest in CNI						(360,000)
Retained earnings, 1/1	(911,000)	(535,000)	(S) 535,000			(911,000)
Net income (above)	(360,000)	(200,000)				(360,000)
Dividends paid	170,000	70,000		(S) 35,000	10,500
				(D) 24,500		170,000
Retained earnings 12/31	(1,101,000)	(665,000)				(1,101,000)
Current assets	392,665	415,000				807,665
Investment in Atlanta	825,335		(D) 24,500	(S)644,000		-0-
				(I)   60,935
				(A1) 90,650
				(A2) 54,250
Land	435,000	283,000				718,000
Buildings	775,000	697,000				1,472,000
Patent			(A1)129,500	(E) 12,950		116,550
Goodwill			(A2) 77,500			77,500
Total assets	2,428,000	1,395,000				3,191,715
Liabilities	(827,000)	(410,000)				(1,237,000)
Common stock	(95,000)	(300,000)	(S) 300,000			(95,000)
Additional paid?in capital	(405,000)	(20,000)	(S) 20,000			(405,000)
Retained earnings 12/31	(1,101,000)	(665,000)				(1,101,000)
Noncontrolling interest 7/1				(A1) 38,850
				(A2) 23,250 (S) 276,000	(338,100)
Noncontrolling interest 12/31					353,715	(353,715)
Total liab. and equity	(2,428,000)	(1,395,000)	1,426,885	1,426,885		(3,191,715)