a.
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.
a.

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 |
$ 70,000 | indefinite | $ - | |
Total | $ 20,000 |
Table: (1)
b.
Explain the manner in which Company T allocate the goodwill from the acquisition across the controlling and non-controlling interests.
b.

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

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.
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.
d.

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) | |||||
| ||||||
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) | ||
| $ (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)
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