On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstandi
ID: 2536116 • Letter: O
Question
On January 1, Patterson Corporation acquired 80 percent of the 100,000 outstanding voting shares of Soriano, Inc., in exchange for $31.25 per share cash. The remaining 20 percent of Soriano’s shares continued to trade for $30 both before and after Patterson’s acquisition.
At January 1, Soriano’s book and fair values were as follows
$740,000
$2,970,000
In addition, Patterson assigned a $600,000 value to certain unpatented technologies recently developed by Soriano. These technologies were estimated to have a 3-year remaining life.
During the year, Soriano declared a $30,000 dividend for its shareholders. The companies reported the following revenues and expenses from their separate operations for the year ending December 31.
a.What total value should Patterson assign to its Soriano acquisition in its January 1 consolidated balance sheet?
b.What valuation principle should Patterson use to report each of Soriano’s identifiable assets and liabilities in its January 1 consolidated balance sheet?
c.For years subsequent to acquisition, how will Soriano’s identifiable assets and liabilities be valued in Patterson’s consolidated financial statements?
d.How much goodwill resulted from Patterson’s acquisition of Soriano?
e.What is the consolidated net income for the year and what amounts are allocated to the controlling and noncontrolling interests?
f.What is the noncontrolling interest amount reported in the December 31 consolidated balance sheet?
g.Assume instead that, based on its share prices, Soriano’s January 1 total fair value was assessed at $2,250,000. How would the reported amounts for Soriano’s net assets change on Patterson’s acquisition-date consolidated balance sheet?
Book Values Fair Values Remaining Life Current assets $80,000 $80,000 Buildings and equipment $1,250,000 $1,000,000 5 years Trademarks $700,000 $900,000 10 years Patented technology $940,000 $2,000,000 4 years $2,970,000 Current liabliities $180,000 $180,000 Long-term notes payable $1,500,000 $1,500,000 Common stock $50,000 Additional paid-in capital $500,000 Reatained earnings$740,000
$2,970,000
Explanation / Answer
a) Patterson’s consideration transferred ($31.25 × 80,000 shares) $2,500,000 Noncontrolling interest fair value ($30.00 × 20,000 shares) $600,000 Soriano’s total fair value $3,100,000 b) Each identifiable asset acquired and liability assumed in a business combination should initially be reported at its acquisition-date fair value. d) Soriano’s total fair value 1/1 $3,100,000 Soriano’s net assets book value 1,290,000 Excess acquisition-date fair value over book value $1,810,000 Adjustments from book to fair values Buildings and equipment -250,000 Trademarks 200,000 Patented technology 1,060,000 Unpatented technology 600,000 1,610,000 Goodwill $200,000 e) Combined revenues $4,400,000 Combined expenses -2,350,000 Building and equipment excess depreciation 50,000 Trademark excess amortization -20,000 Patented technology amortization -265,000 Unpatented technology amortization -200,000 Consolidated net income $1,615,000 To noncontrolling interest: Soriano’s revenues $1,400,000 Soriano’s expenses -600,000 Total excess amortization expenses (above) -435,000 Soriano’s adjusted net income $365,000 Noncontrolling interest percentage ownership 20% Noncontrolling interest share of consolidated net income $73,000 To controlling interest: Consolidated net income $1,615,000 Noncontrolling interest share of consolidated net income -73,000 Controlling interest share of consolidated net income $1,542,000 f) Fair value of noncontrolling interest January 1, $600,000 2009 income 73,000 Dividends (20% × $30,000) -6,000 Noncontrolling interest December 31, 2009 667,000 g) Soriano’s total fair value 1/1 $2,250,000 Collective fair values of Soriano’s net assets $2,900,000 Bargain purchase $650,000