On July 1, 2015, Truman Company acquired a 70 percent interest in Atianta Compan

Question

On July 1, 2015, Truman Company acquired a 70 percent interest in Atianta Company in exchange for consideration of $776,300 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $332,700 both before and after Truman's acquisition. In reviewing its acquisition, Truman assigned a $134,000 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 Subsidiary dividend payments were made quarterly Atlanta Revenues Operating expenses Income of subsidiary $ (681,680) $ (496,000) 412,000 (47,320) 334,000 Net income $ (317,000) (162,000) Retained earnings, 1/1/15 Net income (above) Dividends declared $ (837,000)(509,000) (317,000) 150,000 (162,000) 50,000 Retained eanings, 12/31/15 $(1,004,000) (621,000) Current assets Investment in Atlanta Land Buildings $ 337,880 $ 342,000 806,120 476,000 716,000 285,000 656,000 Total assets $ 2,336,000 1,283,000 Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/15 $ (832,000)(342,000) (300,000) (20,000 (621,000) (95,000) (405,000) (1,004,000) Total liabilities and stockholders' equity $(2,336,000) $(1.283,000)

Explanation / Answer

a. Atlanta's acquisition-date fair value allocation by Truman Consideration transferred by Truman $776,300 Noncontrolling interest fair value $332,700 Atlanta's acquisition date total fair value $1,109,000 Book value of Atlanta $885,000 Fair Value in excess of Book Value $224,000 Excess Fair Value assigned: Patent $134,000 Goodwill $90,000 Retained Earnings, 1/1/15 $509,000 Add: Net income upto 30/6/2015 $81,000 Less: Dividends declared upto 30/6/2015 ($25,000) Retained Earnings, 1/7/15 $565,000 Book Value of Atlanta Common Stock $300,000 Addittional Paid in Capital $20,000 Retained Earnings, 1/7/15 $565,000 Book Value of Atlanta $885,000 b. Truman allocation of Goodwill from the acquisition across the controlling and noncontrolling interest Controlling Interest Noncontrolling Interest Fair Values at acquisition date $776,300 $332,700 Fair values of identifiable net assets (acquisition date book value plus patent) 70% and 30% of $1,019,000 $713,300 $305,700 Goodwill $63,000 $27,000 c. Investment in Atlanta account balance at the end of 2015 Initial value at acquisition date $776,300 Truman's share of Atlanta's net income for half year $47,320 Dividends 2015 ($17,500) Investment account balance 12/31/2015 $806,120 Dividend 2015 = $25000 x 70%                               = $17500 Half years dividend

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