On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Compan

Question

On July 1, 2018, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $763,000 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $327,000 both before and after Truman's acquisition In reviewing its acquisition, Truman assigned a $140,500 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 $ (768,685)(428,000) Revenues Operating expenses Income of subsidiary 299,000 426,000 35,315 Net income $ (378,000)(129,000) Retained earnings, 1/1/18 Net income (above) Dividends declared (378,000) 170,000 $ (859,000)(528,000) (129,000) 90,000 (1,067,000) (567,000) $433,185 $396,000 Retained earnings, 12/31/18 Current assets Investment in Atlanta Land Buildings 766,815 440,000 800,000 251,000 665,000 2,440,000 $ 1,312,000 Total assets Liabilities Common stock Additional paid-in capital Retained earnings (95,000) (405,000) (1067,000) $ (873,000 (425,000) (300,000) (20,000) (567,000) , 12/31/18 Total liabilities and stockholders equity $ (2,440,000) (1,312,000)

Explanation / Answer

a. How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination? Consideration Transfered by Truman $763,000 Noncontrolling interest fair value $327,000 Atlanta's acquisition-date total fair value $1,090,000 Book Value of Atlanta (Atlanta common stock + retained earnings beginning -$867,000 Fair Value in Excess of book Value $223,000 Excess fair value of excess of book value Life in years Amortizations Patent $140,500 5 $28,100 Goodwill $82,500 indefinite $0 Total $28,100 b. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests? Controlling Interest Noncontrolling Interest Fair values at acquisition date $763,000 $327,000 Less: Relative fair values of identifiable net assets (Atlanta common stock + Retained Earning + Patent)=$867,000+140500); 70% and 30% of $1,007,500 $705,250 $302,250 Goodwill $57,750 $24,750 c. How did Truman derive the Investment in Atlanta account balance at the end of 2015? Intial Value at acquistition date $763,000 Truman's Share of Atlanta's net income for half year ($129,000 - $28,100 (amortization))x1/2 year x70% $54,985 Dividends 2015 ($90,000 x 1/2 x 70%) -$31,500 Investment account balance 12/31/15 $786,485

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