On July 1, 2015, Truman Company acquired a 70% interest in Atlanta Company in exchange for consideration of $720,000 in ash and equity securities. The remaining 30% of Atlanta’s shares traded closely near an average price that totaled $290,000 both before and after Truman’s acquisition.
In reviewing its acquisition, Truman assigned a $100,000 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 subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.
| Truman | Atlanta | |
| Revenues | (670,000) | (400,000) |
| Operating expenses | 402,000 | 280,000 |
| Income of subsidiary | (35,000) | – |
| Net income | (303,000) | (120,000) |
| Retained earnings, 1/1/15 | (823,000) | (500,000) |
| Net income (above) | (303,000) | (120,000) |
| Dividends declared | 145,000 | 80,000 |
| Retained earnings, 12/31/15 | (981,000) | (540,000) |
| Current assets | 481,000 | 390,000 |
| Atlanta investment | 727,000 | – |
| Land | 388,000 | 200,000 |
| Building | 701,000 | 630,000 |
| Total assets | 2,297,000 | 1,220,000 |
| Liabilities | (816,000) | (360,000) |
| Common stock | (95,000) | (300,000) |
| Addt’l paid-in capital | (405,000) | (20,000) |
| Retained earnings, 12/31/15 | (981,000) | (540,000) |
| Total liabilites/owner’s equity | (2,297,000) | (1,220,000) |
Answer the following:
1.) How did Truman derive the Investment in Atlanta account balance at the end of 2015?
2.) Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2015. At year-end, there were no intra-entity receivables or payables?
- Consideration transferred by Truman ……….. $720,000
Noncontrolling interest fair value ……………….. 290,000
Atlanta’s acquisition-date total fair value…….. $1,010,000
Book value of Atlanta……………………………………. (840,000)
Fair value in excess of book value………………. $170,000 Annual Excess
Excess fair value assigned Life Amortizations
Patent ………………………………………………………. 100,000 5 years $20,000
Goodwill …………………………………………………….. $70,000 indefinite -0-
Total ……………………………………………………….. $20,000
- Goodwill allocation with control premium Controlling Noncontrolling
Interest Interest
Fair values at acquisition date $720,000 $290,000
Relative fair values of identifiable net assets
70% and 30% of $940,000 (acquisition date
book value plus patent = net asset fair value) 658,000 282,000
Goodwill $ 62,000 $ 8,000
- Initial value at acquisition date $720,000
Truman’s share of Atlanta’s income for half year
([$120,000 – 20,000 amortization × ½ year] × 70%) 35,000
Dividends 2013 ($80,000 × ½ year × 70%) (28,000)
Investment account balance 12/31/13 $727,000
Consolidated Worksheet
TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY
Consolidation Worksheet
For Year Ending December 31, 2015
| Truman | Atlanta | Adjustments & Eliminations | NCI | Cons. | ||
| Revenues | (670,000) | (400,000) | (S)200,000 | (870,000) | ||
| Operating Expenses | 402,000 | 280,000 | (E) 10,000 | (S)140,000 | 552,000 | |
| Income of subsidiary | (35,000) | (I) 35,000 | -0- | |||
| Separate company net income | (303,000) | (120,000) | ||||
| Consolidated net income | (318,000) | |||||
| NCI in Atlanta’s income | (15,000) | 15,000 | ||||
| Controlling interest in CNI | (303,000) | |||||
| Retained earnings, 1/1 | (823,000) | (500,000) | (S) 500,000 | (823,000) | ||
| Net income (above) | (303,000) | (120,000) | (303,000) | |||
| Dividends paid | 145,000 | 80,000 | (S) 40,000 | 12,000 | ||
| (D) 28,000 | 145,000 | |||||
| Retained earnings 12/31 | (981,000) | (540,000) | (981,000) | |||
| Current assets | 481,000 | 390,000 | 871,000 | |||
| Investment in Atlanta | 727,000 | (D) 28,000 | (S)588,000 | -0- | ||
| (I) 35,000 | ||||||
| (A1) 70,000 | ||||||
| (A2) 62,000 | ||||||
| Land | 388,000 | 200,000 | 588,000 | |||
| Buildings | 701,000 | 630,000 | 1,331,000 | |||
| Patent | (A1)100,000 | (E) 10,000 | 90,000 | |||
| Goodwill | (A2) 70,000 | 70,000 | ||||
| Total assets | 2,297,000 | 1,220,000 | 2,950,000 | |||
| Liabilities | (816,000) | (360,000) | (1,176,000) | |||
| 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 | (981,000) | (540,000) | (981,000) | |||
| Noncontrolling interest 7/1 | (A1) 30,000 | |||||
| (A2) 8,000
(S) 252,000 |
(290,000) | |||||
| Noncontrolling interest 12/31 | 293,000 | (293,000) | ||||
| Total liab. and equity | (2,297,000) | (1,220,000) | 1,263,000 | 1,263,000 | (2,950,000) | |
