Non-Controlling Interest in Business Combinations Analysis

1 Non-Controlling Interest U04A1 Nafanua Valdez BUS4063 – Adv. Financial Acct. Topics & Trends Capella University Rob Shah November 4, 2022

2 Problem 25 a. Consideration transferred of Patterson (80,000 shares * $31.25) 2,500,000 Non-Controlling Interest at Fair Value (20,000 shares * $30) 600,000 Total Fair Value of Soriano at January 1 3,100,000 b. In the initial reporting period following a business combination, the fair value of each identified asset acquired, and liability assumed is reported. c. Soriano's identified assets and liabilities are presented in years after the acquisition at book value after being adjusted for fair value allocations made at the acquisition date and for subsequent amortization and depreciation on those allocations. Assets and liabilities of Soriano are not continuously revalued to reflect fluctuating fair values. d. Total fair value of Soriano’s at Jan 1 3,100,000 Book Value of Soriano’s Net Assets (80,000 + 1,250,000 + 700,000 + 940,000) – (180,000 + 1,500,000) (1,290,000) Excess Acquisition-date Fair Value Over Book Value 1,810,000 Adjustments from Book to Fair Values: Buildings and Equipment (1,000,000 – 1,250,000) (250,000) Trademarks (900,000 – 700,000) 200,000 Patented Technology (2,000,000 – 940,000) 1,060,000 Unpatented Technology 600,000 (1,610,000) Goodwill 200,000

3 e. Combined Revenues (3,000,000 + 1,400,000) 4,400,000 Combined Expenses (1,750,000 + 600,000) (2,350,000) Building and Equipment Excess Depreciation (250,000 / 5 years) 50,000 Trademark Excess Amortization (200,000 / 10 years) (20,000) Patented Technology Amortization (1,060,000 / 4 years) (265,000) Unpatented Technology Amortization (600,000 / 3 years) (200,000) Consolidated Net Income 1,615,000 Soriano’s Revenues 1,400,000 Soriano’s Expenses (600,000) Total Excess Amortization Expenses (20,000 + 265,000 + 200,000 – 50,000) (435,000) Soriano’s Adjusted Net Income 365,000 Noncontrolling Interest Percentage Ownership 20% Net Income Attributable to Non-Controlling Interest 73,000 Patterson’s Revenues 3,000,000 Patterson’s Expenses (1,750,000) Patterson’s Separate Net Income 1,250,000 Patterson’s share of Soriano’s adjusted Net Income (365,000 * 80%) 292,000 Consolidated Net Income Attributable to Controlling Interest 1,542,000 f. Fair Value Non-Controlling Interest at Jan 1 600,000 Net Income Attributable to Non-Controlling Interest 73,000 Dividend (30,000 * 20%) (6,000) Non-Controlling Interest at Dec 1 667,000 g. Soriano’s Total Fair Value at Jan 1 2.250,000 Fair Values of Soriano’s Net Assets (80,000 + 1,000,000 + 900,000 + 2,000,000 + 600,000) – (180,000 + 1,500,000) (2,900,000) Gain on Bargain Purchase (650,000)

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