On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $776,300 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $332,700 both before and after Truman’s acquisition. In reviewing its acquisition, Truman assigned a $134,000 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 $ (681,680 ) $ (496,000 ) Operating expenses 412,000 334,000 Income of subsidiary (47,320 ) 0 Net income $ (317,000 ) $ (162,000 ) Retained earnings, 1/1/21 $ (837,000 ) $ (509,000 ) Net income (above) (317,000 ) (162,000 ) Dividends declared 150,000 50,000 Retained earnings, 12/31/21 $ (1,004,000 ) $ (621,000 ) Current assets $ 337,880 $ 342,000 Investment in Atlanta 806,120 0 Land 476,000 285,000 Buildings 716,000 656,000 Total assets $ 2,336,000 $ 1,283,000 Liabilities $ (832,000 ) $ (342,000 ) Common stock (95,000 ) (300,000 ) Additional paid-in capital (405,000 ) (20,000 ) Retained earnings, 12/31/21 (1,004,000 ) (621,000 ) Total liabilities and stockholders' equity $ (2,336,000 ) $ (1,283,000 ) 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?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $776,300 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $332,700 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $134,000 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	$	(681,680	)	$	(496,000	)
Operating expenses		412,000			334,000
Income of subsidiary		(47,320	)		0
Net income	$	(317,000	)	$	(162,000	)
Retained earnings, 1/1/21	$	(837,000	)	$	(509,000	)
Net income (above)		(317,000	)		(162,000	)
Dividends declared		150,000			50,000
Retained earnings, 12/31/21	$	(1,004,000	)	$	(621,000	)
Current assets	$	337,880		$	342,000
Investment in Atlanta		806,120			0
Land		476,000			285,000
Buildings		716,000			656,000
Total assets	$	2,336,000		$	1,283,000
Liabilities	$	(832,000	)	$	(342,000	)
Common stock		(95,000	)		(300,000	)
Additional paid-in capital		(405,000	)		(20,000	)
Retained earnings, 12/31/21		(1,004,000	)		(621,000	)
Total liabilities and stockholders' equity	$	(2,336,000	)	$	(1,283,000	)

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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