Question

37. On January 1, 2017. Paloma Corporation exchanged $1.710.000 cash for 90 percent of the cut- standing voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable basis for assessing the total January 1, 2017, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners' equity amounts in its balance sheet: Common stock .... $400.000 Additional paid-in capital........ 60.000 Retained earnings. 265,000 In determining its acquisition offer, Paloma noted that the values for San Marco's recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had developed internally a customer base with an assessed fair value of $80,000 that was not reflected on San Marco's books. Paloma expected both cost and revenue synergies from the combination At the acquisition date, Paloma prepared the following fair value allocation schedule: Fair value of San Marco Company...... Book value of San Marco Company ... Excess fair value .................. to customer base (10-year remaining life)..... to goodwill........ At December 31, 2018, the two companies report the following balances: $1,900,000 725.000 1,175,000 800,000 $ 375.000 Paloma San Marco $ (675,000) 322,000 120.000 11.000 7.000 Revenues............ Cost of goods sold..... Depreciation expense.... Amortization expense Interest expense....... Equity in income of San Marco Net income Retained earnings, 1/1...... Net income.. Dividends declared..... Retained earnings, 12/31... Current assets Investment in San Marco... Buildings and equipment... Copyrights ..... Total assets... $(1.843,000) 1,100,000 125,000 275,000 27,500 (121,500) $ (437,000 $(2,625,000) (437,000) 350,000 $(2.712,000) $ 1.204,000 1.854.000 931,000 950.000 $ 4,939,000 $ (485,000) (542,000) (900,000) (300,000) (2.712,000) $(4.939,000) $ 215.000) $ (395,000) (215,000) 25,000 $ (585,000 $ 430,000 Accounts payable..... Notes payable... Common stock Additional paid-in capital Retained earnings, 12/31 ..... Total liabilities and equities. 863.000 107.000 $ 1.400,000 $ 200,000) (155.000) (400,000) (60.000) (585.000) $(1.400,000 At year-end, there were no intra-entity receivables or payables. a. Determine the consolidated balances for this business combination as of December 31, 2018. b. If instead the noncontrolling interest's acquisition-date fair value is assessed at $167.500, what changes would be evident in the consolidated statements?

Answer 1

ANSWER

As per the given question,

PART- A

San Mar 183.00 (2,518 000 (121,5001 1500 (437,000 (2.605,000 350.000 (2.772 000 14. 30 1.794.000 1,057,000 100009 (485,000 $ (542,000S (206,000) 1900.000 $ JETTI (2.712,000) 12, 712,000 $ 14939,000 $ 3,174,00 2,274,060

1,710,000 $ 1902 and 1051525,000 acquisition date 17500

PART- B

Fair value of San Marco Company (1,710,000+ 167,500) I carrying amount acquired Excess fair value to customer base to goodwill Noncontrolling Interest balance beginning of year Net income attributable to noncontrolling interest Dividends declared to noncontrolling interest Noncontrolling Interest end of year s 1,877,500 725,000 1,152.500 800,000 352,500 (172.500) (13,500) 2,500 (183,500) $ s $ S NCI at beginning of year Common stock subsidiary APIC-subsidiary Retained earnings-subsidiary 1/1 Total Noncontrolling interest percentage Noncontrolling share of subsidiary book value Noncontrolling share of 1/1 customer base excess Noncontrolling share of goodwill below) Noncontrolling interest 1/1 400,000 60,000 395,000 855,000 10% 85.500 72.000 15,000 172.500 5 $

Paloma $1,710,000 NCI $167,500 Fair value at acquisition date Relative fair values of identifiable net assets 90% and 10% of $1,525,000 (acquisition date recorded fair value plus customer base) Goodwill 1.372.500 $337,500 152.500 $15,000

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