On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $792,400 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $339,600 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $125,500 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 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly. Truman Atlanta Revenues $ (768,485 ) $ (536,000 ) Operating expenses 418,000 378,000 Income of subsidiary (46,515 ) 0 Net income $ (397,000 ) $ (158,000 ) Retained earnings, 1/1/21 $ (884,000 ) $ (547,000 ) Net income (above) (397,000 ) (158,000 ) Dividends declared 155,000 50,000 Retained earnings, 12/31/21 $ (1,126,000 ) $ (655,000 ) Current assets $ 542,585 $ 423,000 Investment in Atlanta 821,415 0 Land 404,000 256,000 Buildings 742,000 690,000 Total assets $ 2,510,000 $ 1,369,000 Liabilities $ (884,000 ) $ (394,000 ) Common stock (95,000 ) (300,000 ) Additional paid-in capital (405,000 ) (20,000 ) Retained earnings, 12/31/21 (1,126,000 ) (655,000 ) Total liabilities and stockholders' equity $ (2,510,000 ) $ (1,369,000 ) What is the excess fair-value assigned to patent and goodwill? How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests? How did Truman derive the Investment in Atlanta account balance at the end of 2021?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

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On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $792,400 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $339,600 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $125,500 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 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.

	Truman		Atlanta
Revenues	$	(768,485	)	$	(536,000	)
Operating expenses		418,000			378,000
Income of subsidiary		(46,515	)		0
Net income	$	(397,000	)	$	(158,000	)
Retained earnings, 1/1/21	$	(884,000	)	$	(547,000	)
Net income (above)		(397,000	)		(158,000	)
Dividends declared		155,000			50,000
Retained earnings, 12/31/21	$	(1,126,000	)	$	(655,000	)
Current assets	$	542,585		$	423,000
Investment in Atlanta		821,415			0
Land		404,000			256,000
Buildings		742,000			690,000
Total assets	$	2,510,000		$	1,369,000
Liabilities	$	(884,000	)	$	(394,000	)
Common stock		(95,000	)		(300,000	)
Additional paid-in capital		(405,000	)		(20,000	)
Retained earnings, 12/31/21		(1,126,000	)		(655,000	)
Total liabilities and stockholders' equity	$	(2,510,000	)	$	(1,369,000	)

What is the excess fair-value assigned to patent and goodwill?
How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?
How did Truman derive the Investment in Atlanta account balance at the end of 2021?
Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2021. At year-end, there were no intra-entity receivables or payables.

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