On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $763,175 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $327,075 both before and after Truman’s acquisition.
In reviewing its acquisition, Truman assigned a $104,500 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 2015. In addition, the subsidiary’s income was earned uniformly throughout the year. Subsidiary dividend payments were made quarterly.
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TRUMAN ATLANTA Revenues $ (715,065 ) $ (470,000 ) Operating expenses 441,000 295,000 Income of subsidiary (53,935 ) Net income $ (328,000 ) $ (175,000 ) Retained earnings, 1/1/15 $ (920,000 ) $ (546,000 ) Net income (above) (328,000 ) (175,000 ) Dividends declared 140,000 90,000 Retained earnings, 12/31/15 $ (1,108,000 ) $ (631,000 ) Current assets $ 516,390 $ 466,000 Investment in Atlanta 785,610 Land 412,000 271,000 Buildings 752,000 652,000 Total assets $ 2,466,000 $ 1,389,000 Liabilities $ (858,000 ) $ (438,000 ) Common stock (95,000 ) (300,000 ) Additional paid-in capital (405,000 ) (20,000 ) Retained earnings, 12/31/15 (1,108,000 ) (631,000 ) Total liabilities and stockholders’ equity $ (2,466,000 ) $ (1,389,000 ) A. How did Truman allocate Atlanta’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination?
B. How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests? C.How did Truman derive the Investment in Atlanta account balance at the end of 2015?
D. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2015