Question

On January 1, Beckman, Inc., acquires 60 percent of the outstanding stock of Calvin for $54,480. Calvin Co. has one recorded asset, a specialized production machine with a book value of $10,000 and no liabilities. The fair value of the machine is $78,000, 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 $90,800.

At the end of the year, Calvin reports the following in its financial statements:


Revenues 65,550   Machine 13,590   Common stock 10,000
Expenses 29,250   Other assets 27,710  Retained earnings 31,300
Net income 36,300 Total assets 41,300  Total equity 41,300
Dividends paid 5,000

Required:

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.

Answer 1

Answer:

Beckman noncontrolling interest in subsidiary income $10,520

Calvin Machine (net of accumulated depreciation) $71,200

Explanation:

To calculate noncontrolling interest in subsidiary's income;

Revenue    $65,550

Expenses   $39,250 (29,250 + $6,800 + $3,200)

Net Income $26,300

Noncontrolling percentage = 40%

NonControlling Income = $10,520

Depreciation of Machine = $\frac{Fair value of Machine - Book value}{estimated useful life}$

$\frac{78,000 - 10,000}{10 years}$ = 6,800 per annum

Amortization of trade secrets = $\frac{Fair Value Total - Machine value}{Useful life}$

Amortization of trade secrets = $\frac{90,800 - 78,000}{4 years}$

= 3,200