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On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $829,500 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $355,500 both before and after Truman’s acquisition.
| In reviewing its acquisition, Truman assigned a $127,500 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. |
| Truman | Atlanta | |||||
| Revenues | $ | (739,075 | ) | $ | (479,000 | ) |
| Operating expenses | 403,000 | 308,000 | ||||
| Income of subsidiary | (50,925 | ) | ||||
| Net income | $ | (387,000 | ) | $ | (171,000 | ) |
| Retained earnings, 1/1/15 | $ | (915,000 | ) | $ | (589,000 | ) |
| Net income (above) | (387,000 | ) | (171,000 | ) | ||
| Dividends declared | 150,000 | 60,000 | ||||
| Retained earnings, 12/31/15 | $ | (1,152,000 | ) | $ | (700,000 | ) |
| Current assets | $ | 514,575 | $ | 402,000 | ||
| Investment in Atlanta | 859,425 | |||||
| Land | 444,000 | 225,000 | ||||
| Buildings | 715,000 | 713,000 | ||||
| Total assets | $ | 2,533,000 | $ | 1,340,000 | ||
| Liabilities | $ | (881,000 | ) | $ | (320,000 | ) |
| Common stock | (95,000 | ) | (300,000 | ) | ||
| Additional paid-in capital | (405,000 | ) | (20,000 | ) | ||
| Retained earnings, 12/31/15 | (1,152,000 | ) | (700,000 | ) | ||
| Total liabilities and stockholders’ equity | $ | (2,533,000 | ) | $ | (1,340,000 | ) |
I am missing Atlanta’s Book Value from the probem below:
| 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: $829,500 Noncontrolling Interest Fair Value: $355,500 Atlanta’s Acquisition-Date Total Fair Value: $1,185,000 Book Value of Atalanta: (919,00)-This is what I calculate, but when I submit, it is marked incorrect Fair Value in Excess of Book Value: Excess fair value assigned: Patent: $127,500 Goodwill: TBD |
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