On July 1, 2015, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $788,900 in cash and equity securities. The remaining 30 percent of Atlanta's shares traded closely near an average price that totaled $338,100 both before and after Truman's acquisition.
In reviewing its acquisition, Truman assigned a $129,500 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 $ 785,065 $ 533,000
Income of subsidiary 60,935
Operating expenses (486,000 ) (333,000 )
Net income $ 360,000 $ 200,000
Retained earnings, 1/1/15 $ 911,000 $ 535,000
Net income 360,000 200,000
Dividends declared (170,000 ) (70,000 )
Retained earnings, 12/31/15 $ 1,101,000 $ 665,000
Current assets $ 392,665 $ 415,000
Investment in Atlanta 825,335
Land 435,000 283,000
Buildings 775,000 697,000
Total assets $ 2,428,000 $ 1,395,000
Liabilities $ 827,000 $ 410,000
Common stock 95,000 300,000
Additional paid-in capital 405,000 20,000
Retained earnings 1,101,000 665,000
Total liabilities and stockholders' equity $ 2,428,000 $ 1,395,000
a. How did Truman allocate Atlanta's acquisition-date fair value on 7/1/15 to the various assets acquired and liabilities assumed in the combination?
b. How did Truman allocate the goodwill from the acquisition on 7/1/15 across the controlling and noncontrolling interests?
c. How did Truman derive the Investment in Atlanta account balance at the end of 2015?
d. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2015. (Do not leave any cells blank. Enter only positive number in the Consolidation Worksheet Adjustments debit and credit columns for the controlling interest and zeros in cells where appropriate. Credit amounts should be preceded by an minus sign in the NCI column.)