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 $749,000 irn cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $321,000 both before and after Truman's acquisition In reviewing its acquisition, Truman assigned a $112,500 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.

Explanation / Answer

a) Consideration transferred by Truman $749,000 Noncontrolling interest fair value $321,000 Atlanta’s acquisition-date total fair value $1,070,000 Book value of Atlanta (Atlanta common stock + beg.retained earnings + dividends paid after acquisition ) $300,000 + $584,000 + (($80,000/4quarter)x2quarter) -$924,000 Fair value in excess of book value $146,000 Excess fair value assigned Life Annual Excess Amortizations Patent $112,500 5 $22,500 Goodwill $33,500 indifinie 0 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 -$749,000 -$321,000 Less: Relative fair values of identifiable net assets (Atlanta common stock + Retained Earning + Patent)=$924,000+112,500); 70% and 30% of $1,036,500 -$725,550 -$310,950 Goodwill -$23,450 -$10,050 c. Initial value at acquisition date $749,000 Truman’s share of Atlanta’s income for half year ([$154,000 – 22,500 amortization × ½ year] × 70%) $46,025 Dividends 2015 ($80,000 × ½ year × 70%) -28000 Investment account balance 12/31/18 $767,025 Investment account balance 12/31/18 $823,375

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