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39. (25 minutes) (Consolidated balances after a mid-year acquisition)
a. Investment account balance indicates the initial value method.
Consideration transferred by Gibson....... $528,000
Noncontrolling interest fair value ............ 352 ,000
Davis acquisition-date fair value .............. 880,000
5 years............................................$(6,000)
Goodwill ........................................... $145 ,000
indefinite......................................... -0-
Total ........................................................ $(6 ,000)
Amortization for 9 months ................... $(4 ,500)
Book value of Davis, 4/1/15 (acquisition date) ........ $765 ,000
Consolidated income statement:
Revenues (1) $825,000
Cost of goods sold (2) $405,000
Operating expenses (3) 214 ,500 619 ,500
(2) $440,000 combined COGS less $35,000 (preacquisition subsidiary COGS)
(3) $234,000 combined operating expenses less $15,000 (preacquisition
subsidiary operating expenses) less nine month excess overvalued
equipment depreciation reduction of $4,500
(4) 40% of post-acquisition subsidiary net income less excess amortization
b. Goodwill = $145,000 (original allocation)
Equipment = $774,500 (add the two book values less $30,000
reduction to fair value plus $4,500 nine months excess
amortization)
40. (40 minutes) Determine consolidated balance for a mid-year acquisition.
a. Consideration transferred by Truman ........... $720,000
Noncontrolling interest fair value .................. 290 ,000
Atlanta’s acquisition-date total fair value...... $1,010,000
Patent .......................................................... 100 ,000
5 years.............................................$20,000
Goodwill ........................................................ $ 70 ,000
indefinite..................................................... -0 -
Total ............................................................ $20,000
b. Goodwill allocation with control premium Controlling Noncontrolling
Interest Interest
Fair values at acquisition date $720,000 $290,000
c. Initial value at acquisition date $720,000
Truman’s share of Atlanta’s net income for half year
([$120,000 – 20,000 amortization × ½ year] × 70%) 35,000
40. (continued)
d. Consolidated Worksheet
TRUMAN COMPANY AND SUBSIDIARY ATLANTA COMPANY
Consolidation Worksheet
For Year Ending December 31, 2015
Truman Atlanta Adjustments & Eliminations NCI Cons.
Revenues (670,000) (400,000) (S)200,000 (870,000)
Operating Expenses 402,000 280,000 (E) 10,000 (S)140,000 552,000
Net income of subsidiary (35,000) (I) 35,000 -0-
Separate company net income (303,000) (120,000)
Retained earnings, 1/1 (823,000) (500,000) (S) 500,000 (823,000)
Net income (above) (303,000) (120,000) (303,000)
Dividends declared 145,000 80,000 (S) 40,000 12,000
(I) 35,000
(A1) 70,000
(A2) 62,000
Land 388,000 200,000 588,000
Buildings 701,000 630,000 1,331,000
Goodwill (A2) 70,000 70,000
Total assets 2,297,000 1,220,000 2,950,000
Liabilities (816,000) (360,000)
(1,176,000
)
Noncontrolling interest 7/1 (A1) 30,000
(A2) 8,000
(S) 252,000
(290,000
)
(293,000
(293,000
41. (60 minutes) (Consolidated statements for a step acquisition)
a. Fair value of Sysinger 1/1/15 (given) $1,750,000
Book value of Sysinger 1/1/15 (CS + APIC + RE) 1 ,300,000
To goodwill $50 ,000
b. Equity in earnings of Sysinger
2015 net income (150,000 × 95%) $142,500
Revaluation of 15% block to fair value
Consideration transferred $184,500
2014 net income (100,000 × 15%) 15,000
Investment account balance
Fair value at 1/1/15 (15% block) $262,500
Consideration transferred 1/1/15 (80% block) 1,400,000
Equity earnings 2015
Net income (95% × 150,000) 142,500
41. (Continued) c. Allan and Sysinger
Consolidation Worksheet
For Year Ending December 31, 2015
Allan Sysinger Consolidation Entries Noncontrolling Consolidated
Accounts Company Company Debit Credit Interest Totals
Consolidated net income (433,500)
NI attributable to noncontrolling interest (2,500) 2 ,500
NI attributable to Allan Company (431 ,000)
Retained earnings, 1/1 (965,000) (600,000) (S) 600,000 (965,000)
Net income (431,000) (150,000) (431,000)
(I) 47,500
(A) 427,500
Property, plant, and equipment 826,000 590,000 1,416,000
Patented technology 850,000 370,000 1,220,000
Customer contract -0- -0- (A) 400,000 (E) 100,000 300,000
Retained earnings 12/31 (1,256,000) (710,000) (1,256,000)
NCI in Sysinger, 1/1 -0- -0- (S) 65,000
(A) 22,500 (87 ,500)
NCI in Sysinger, 12/31 -0 - -0 - (88 ,000) (88 ,000)
Total liab. and stockholders' equity (3 ,636,000) (1 ,500,000) 1 ,935,500 1 ,935,500 (3 ,814,000)
42. (60 minutes) (Step acquisition—control previously acquired.)
a. According to the acquisition method, the valuation basis for a subsidiary is
established on the date control is obtained, in this case January 1, 2014.
Fair value of Keane Company 1/1/14 ($573,000 ÷ 60%) $955,000
Percent acquired in step acquisition 30 %
Value assigned to 30% acquisition 301,500
Cash paid for the 30% acquisition 300 ,000
Credit to APIC from 30% step acquisition $ 1 ,500
Entry to record 30% additional investment in Keane:
1/1/15 Investment in Keane 301,500
Cash 300,000
APIC from step acquisition 1,500
b. Investment in Keane Company 1/1/14 $573,000
2015 Dividends from Keane (90% × $60,000) (54 ,000)
Investment in Keane Company 12/31/15 $994 ,500
42. (continued) part c. BRETZ, INC. AND KEANE COMPANY
Consolidation Worksheet
Year Ending December 31, 2015
Consolidation Entries Noncontrolling Consolidated
Accounts Bretz, Inc. Keane Co. Debit Credit Interest Totals
NI attributable to noncontrolling interest (16,000) 16 ,000
NI attributable to Bretz, Inc. (346 ,000)
Retained earnings, 1/1 (797,000) (500,000) (S) 500,000 (797,000)
Net income (above) (346,000) (180,000) (346,000)
Dividends declared 143 ,000 60 ,000 (D) 54,000 6,000 143 ,000
(I) 144,000
Trademarks 106,000 600,000 706,000
Equipment (net) 380,000 110,000 490,000
Goodwill (A) 25,000 25 ,000
Retained earnings,12/31 (1,000,000) (620,000) (1,000,000)
Non-controlling interest 1/1 (A) 12,500
(S) 88,000 (100 ,500)
Non-controlling interest 12/31 (110 ,500)
(110,500)
ACCOUNTING THEORY RESEARCH CASE: NONCONTROLLING INTEREST
In deliberations prior to the issuance of SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements,” the FASB considered three alternatives for
displaying the noncontrolling interest in the consolidated balance sheet
What were these three alternatives?
What criteria did the FASB use to evaluate the desirability of each alternative?
The FASB evaluated whether the classifications conformed to current definitions
In what specific ways did FASB Concept Statement 6 affect the FASB’s evaluation
of these alternatives?
From SFAS 160 paragraphs 32-34
If it required that the noncontrolling interest be reported in the mezzanine,
the Board would have had to create a new element—noncontrolling
interest in subsidiaries—specifically for consolidated financial
statements. The Board concluded that no compelling reason exists to
The Board concluded that a noncontrolling interest in a subsidiary does
not meet the definition of a liability in the Board’s conceptual framework.
The Board concluded that a noncontrolling interest represents the
residual interest in the net assets of a subsidiary within the consolidated
RESEARCH CASE: COCA-COLA’S ACQUISITION OF COCA-COLA ENTERPRISES
1. How did Coca-Cola allocate the acquisition-date fair value of CCE among the assets
acquired and liabilities assumed?
Note 2 (Acquisitions and Divestitures) of Coca-Cola’s 2010 10-K shows the following
allocation for the CCE acquisition:
Cash and cash equivalents $ 49
Marketable securities 7
Trade accounts receivable 1,194
Total identifiable assets acquired 14,468
Accounts payable and accrued expenses 1,826
Loans and notes payable 266
Long-term debt 9,345
Pension and other postretirement liabilities 1,313
2. What are employee replacement awards? How did Coca-Cola account for the
replacement award value provided to the former employees of CCE?
Employee replacement award represent various share-based payments to employees
that the acquiring firm replaces with new awards based on its shares. The ASC
3. How did Coca-Cola account for its 33 percent interest in CCE prior to the acquisition
of the 67 percent not already owned by Coca-Cola?
4. Upon acquisition of the additional 67 percent interest, how did Coca-Cola account for
the change in fair value of its original 33 percent ownership interest?
“We remeasured our equity interest in CCE to fair value upon the close of the
INSTAPOWER: FASB ASC AND IFRS RESEARCH CASE
1. What is the total consideration transferred by Q-Car to acquire its 90 percent
controlling interest in InstaPower?
Cash $60,000,000
Shares of Q-Car stock 27,000,000
2. What values should Q-Car assign to identifiable assets and liabilities as part of the
acquisition accounting?
Cash $ 270,000
Accounts receivable 800,000
Land 2,930,000
Building 19,000,000
Machinery 46,000,000
(ASC 805-20-30-1)
3. What is the acquisition-date value assigned to the 10 percent noncontrolling interest?
What are the noncontrolling interest valuation alternatives available under IFRS?
Under U.S. GAAP, the acquisition-date noncontrolling interest is measured at its fair
value. In this case, there are no readily available market values for the noncontrolling
4. Under U.S. GAAP, what amount should Q-Car recognize as goodwill from the
acquisition? What alternative valuations are available for goodwill under IFRS?
Goodwill under U.S. GAAP (ASC 805-30-30-1) and IFRS alternative 1 (IFRS 3 IN 8):
Consideration transferred (above) $ 97,000,000
Acquisition-date noncontrolling interest fair value 11,000,000
Acquisition-date value assigned to subsidiary $106,000,000
Net assets acquired fair value (above) 90,000,000
Goodwill $ 16,000,000
