On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Cal
ID: 2579095 • Letter: O
Question
On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $61,680. Calvin Co. has one recorded asset, a specialized production machine with a book value of $18,200 and no liabilities. The fair value of the machine is $92,200, and the remaining useful life is estimated to be 10 years. Any remaining excess fair value is attributable to an unrecorded process trade secret with an estimated future life of 4 years. Calvin’s total acquisition date fair value is $102,800.
At the end of the year, Calvin reports the following in its financial statements:
Determine the amounts that Beckman should report in its year-end consolidated financial statements for noncontrolling interest in subsidiary income, noncontrolling interest, Calvin’s machine (net of accumulated depreciation), and the process trade secret.
Revenues $ 63,150 Machine $ 16,380 Common stock $ 10,000 Expenses 31,050 Other assets 20,720 Retained earnings 27,100 Net income $ 32,100 Total assets $ 37,100 Total equity $ 37,100 Dividends paid $ 5,000 Amount Noncontrolling interest in subsidiary income Total noncontrolling interest Calvin's machine (net accumulated depreciation) Process trade secretExplanation / Answer
Solution:
Noncontrolling interest in subsidiary income: $8,820
Total noncontrolling interest: $47,940
Calvin's machine (net accumulated depreciation): 82,980
Process trade secret :7,950
Working:
FV of company (given
102,800
BV
-18,200
Fair value in excess of book value
84,600
(92,200 - 18,200) * 10 = $7,400 per year
10,600 / 4 = $2650 per year
7400+2650 = 10,050 per year
Noncontrolling interest in subsidiary income : 40% * (63150 - 41100) = 8,820
Computation of End-of-year noncontrolling interest:
Beginning balance (40% * $102,800)
41120
Add: Income allocation
8,820
Minus: Dividend reduction (40% * $5,000)
2,000
47,940
Computation of Calvin's machine (net accumulated depreciation)
= ($16,380 + $74,000 - $7400)
=82,980
Computation of Process trade secret (net):
= $10,600 $2,650
= $7,950
FV of company (given
102,800
BV
-18,200
Fair value in excess of book value
84,600