Chapter 4, Problem 42P

a.

To determine

Explain the manner in which Company T allocate Company A’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination.

Explanation of Solution

Allocation of Company A’s acquisition-date fair value to the various assets acquired and liabilities assumed in the combination:

Particulars	Amount
Consideration transferred by Company T	$      720,000
Fair value of non-controlling interest	$      290,000
Total fair value of Company A	$   1,010,000
Book value of Company A	$    (840,000)
Excess fair value over book value	$      170,000
Excess fair value allocated to:		Remaining life	Annual amortization
Patent	$      100,000	5 years	$      20,000
Goodwill	$        70,000	indefinite	$               -
Total			$      20,000

Table: (1)

b.

To determine

Explain the manner in which Company T allocate the goodwill from the acquisition across the controlling and non-controlling interests.

Explanation of Solution

Allocation of goodwill from the acquisition across the controlling and non-controlling interests:

Allocation of goodwill	Controlling interest	Non-controlling interest
Fair value on date of acquisition	$      720,000	$  290,000
Share in net assets	$      658,000	$  282,000
Goodwill allocation	$        62,000	$      8,000

Table: (2)

c.

To determine

Identify how Company T derive the Investment in Company A account balance at the end of 2018.

Explanation of Solution

The Investment in Company A account balance at the end of 2018:

Particulars	Amount
Initial value on date of acquisition	$      720,000
Share of Company T in net income of Company A	$        35,000
Dividends in 2018	$      (28,000)
Balance of investment on 12/31/2018	$      727,000

Table: (3)

d.

To determine

Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables.

Explanation of Solution

The worksheet to consolidate the financial statements of these two companies as of December 31, 2018:

Income statement	Company T	Company A	Debit	Credit	Non-controlling interest	Consolidated Balances
Revenues	$    (670,000)	$    (400,000)	S 200,000			$      (870,000)
Operating expense	$      402,000	$      280,000	E 10,000	S 140,000		$       552,000
Equity in income of Company A	$      (35,000)		I 35,000			$                   -
Net income	$    (303,000)	$    (120,000)
Consolidated net income						$      (318,000)
Share of non-controlling interest in net income					$     (15,000)	$         15,000
Share of controlling interest in net income						$      (303,000)
Balance Sheet
Current assets	$      481,000	$      390,000				$       871,000
Investment in Company A	$      727,000	$                 -	D 28,000	$     588,000
				$       35,000
				$       70,000
				$       62,000		$                   -
Land	$      388,000	$      200,000				$       588,000
Buildings	$      701,000	$      630,000				$    1,331,000
Patents		$                 -	A 100,000	E 10,000		$         90,000
Goodwill		$                 -	A 70,000			$         70,000
Total assets	$   2,297,000	$   1,220,000				$    2,950,000
Liabilities	$    (816,000)	$    (360,000)				$   (1,176,000)
Common stock	$      (95,000)	$    (300,000)	$    300,000			$        (95,000)
Additional paid-in capital	$    (405,000)	$      (20,000)	$      20,000			$      (405,000)
Retained earnings	$    (981,000)	$    (540,000)				$      (981,000)
Non-controlling interest in Company A				S $25200
				A $8,000	$   (290,000)
				A 30,000
					$   (293,000)	$      (293,000)
Total liabilities and equity	$ (2,297,000)	$ (1,220,000)	$ 1,263,000	$  1,263,000		$    2,950,000

Table: (4)

Working note:

Statement of retained earnings	Company T	Company A	Debit	Credit	Non-controlling interest	Consolidated Balances
Retained earnings on 01/01	$    (823,000)	$    (500,000)	$    500,000			$      (823,000)
Net Income	$    (303,000)	$    (120,000)		S 40,000	12,000	$      (303,000)
Dividends declared	$      145,000	$        80,000		D 28,000		$       145,000
Retained earnings on 31/12	$    (981,000)	$    (540,000)				$      (981,000)

Table: (5)