Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.60 per share on January 1, 2014. The remaining 20 percent of Devine’s shares also traded actively at $7.60 per share before and after Holtz’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devine’s underlying accounts except that a building with a 5-year life was undervalued by $72,500 and a fully amortized trademark with an estimated 10-year remaining life had a $77,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $348,500.

Following are the separate financial statements for the year ending December 31, 2015

		Holtz Corporation				Devine, Inc.
Sales		$	(614,000	)		$	(408,250	)
Cost of goods sold			216,000				174,000
Operating expenses			251,000				122,250
Dividend income			(16,000	)			0
Net income		$	(163,000	)		$	(112,000	)
Retained earnings, 1/1/15		$	(712,000	)		$	(418,500	)
Net income (above)			(163,000	)			(112,000	)
Dividends declared			80,000				20,000
Retained earnings, 12/31/15		$	(795,000	)		$	(510,500	)
Current assets		$	322,000			$	305,500
Investment in Devine, Inc			608,000				0
Buildings and equipment (net)			710,000				436,000
Trademarks			189,000				142,000
Total assets		$	1,829,000			$	883,500
Liabilities		$	(714,000	)		$	(273,000	)
Common stock			(320,000	)			(100,000	)
Retained earnings, 12/31/15 (above)			(795,000	)			(510,500	)
Total liabilities and equities		$	(1,829,000	)		$	(883,500	)

a.	Prepare a worksheet to consolidate these two companies as of December 31, 2015

HOLTZ CORPORATION AND DEVINE, INC. Consolidation Worksheet For Year Ending December 31, 2015 Consolidation Entries Noncontrolling Interest Consolidated Totals Accounts Holtz Corporation Devine Inc. Debit Credit Sales (614,000) (408,250) Cost of goods sold 216,000 174,000 Operating expenses 251,000 122,250 Dividend income (16,000) Separate company net income (163,000) (112,000) Consolidated net income NCI in consolidated net income Holtz’s interest in consolidated net income Retained earnings, 1/1 (712,000) (418,500) Net income (163,000) (112,000) Dividends declared 80,000 20,000 Retained earnings, 12/31 (795,000) (510,500) Current assets 322,000 305,500 Investment in Devine 608,000 Buildings and equipment (net) 710,000 436,000 Trademarks 189,000 142,000 Goodwill 0 0 Total assets 1,829,000 883,500 Liabilities (714,000) (273,000) Common stock (320,000) (100,000) Retained earnings, 12/31 (795,000) (510,500) NCI in Devine, 1/1 NCI in Devine, 12/31 Total liabilities and equities (1,829,000) (883,500)

b.

Prepare a 2015 consolidated income statement for Holtz and Devine. HOLTZ CORPORATION AND DEVINE, INC. Consolidated Income Statement For Year Ending December 31, 2015 Sales Cost of goods sold Operating expenses Total expenses Consolidated net income Noncontrolling interest in CNI Controlling interest in CNI

Answer 1

608,000 152,000 760,000 Calculation of Goodwill on the date of acquisition as on 1/1/2014 Fair value transfer by Holtz Corporation for 80% share (100,000 Shares x 80% x 7.60) Fair value of Non Controlling Interest (100,000 shares x 20% x 7.60) Total Fair Value of Devine ltd Less: Book Value Common Stock Retained Earnings 1/1/14 Excess of Fair value over book Value Allocation of Excess Fair value to: Building Trademark Goodwill (311,500 - 72,500 - 77,000) 100,000 348,500 311,500 72,500 77,000 162,000 Amortization and Carrying Value of Excess fair value of Assets Assets Value as on 1/1/2017 (A) life in years (B) Amortization per year C = (A/B) 5 10 14,500 ,700 Building Trademark Goodwill Total 7 Value as on 1/1/2018 D = (A-C) 58,000 69,300 162,000 289,300 72,500 77,000 162,000 311,500 22,200

HOLTZ CORPORATION AND DIVINE INC. Consolidated Worksheet For the year Ending December 31, 2015 Consolidation Accounts Debit Credit Non Controlling Consolidated Interest Totals (1,022,250) 390,000 395,450 Holtz Corporation Divine Inc (614,000) (408,250) 216,000 174,000 251,000 122,250 (16,000) - (163,000) (112,000) [D] [C] 22,200 16,000 Sales Cost of goods sold Operating expenses Dividend Income Separate Company Net income Consolidated Net Income NI attributable to Controlling Interest NI attributable to Holtz Corp. L (17,960) (236,800) 17,960 (218,840) 418,500 38,240 (ADJ] Retained Earnings 1/1 Net Income Dividends Declared Retained Earnings 12/31 (712,000) (163,000) 80,000 (795,000) (418,500) [E] (112,000) 20,000 (510,500) (750,240) (218,840) 80,000 (889,080)| 16,000 [C] 4,000 627,500 Current Assets Investment in Divine Building and equipments, net Trademarks Goodwill Total Assets 322,000 608,000 710,000 189,000 200 305,500 - [ADJ] 436,000 [A] 142,000 [A] - [A] 883,500 38,240 58,000 69,300 162,000 646,240 14,500 7,700 [E + A] 80% [D] [D] 1,189,500 392,600 162,000 2,371,600 1,829,000

(714,000) (320,000) (795,000) (273,000) (100,000) [E] (510,500) 100,000 (987,000) (320,000) (889,080) Liabilities Common stock Retained Earnings 12/31 NCI in Divine, 1/1 NCI in Divine, 12/31 Total liabilites and equity 161,560 [E + A] x 20% (161,560) (175,520) (175,520) (2,371,600) (1,829,000) (883,500) 884,240 884,240 Working Notes (Adj. JAdjustment for Conversion from Intial method to equity Method Change in Retained earnings of Divine from 01/01/14 to 01/01/15 = (421,500 - 351,500) Less: Excess Amortization Adjusted increase in Retained Earnings of Divine Ltd Holtz share 80% ( 47,800 x 80%) 70,000 22,200 47,800 38,240 Net Income attributable to Non Controlling Interest Net Income of Divine Less: Excess Amortization Adjusted Net Income of Divine Non Controlling Share 20% (89,800 ~ 20%) 112,000 22,200 89,800 17,960 Entries Explanation [C] It is to eliminate the intra entity dividend declared by the subsidiary and recorded as income by parent [E] it is to eliminate the stockholders' equity account of subsidiary while recognizing the Non controlling interest at the beginning of the year Non Controlling Shares: [(Common Stock + Retained Earnigns 01/01/15) × 20%] Investment in Devine : [(Common Stock + Retained Earnigns 01/01/15) > 80%] [A] it is to record the unamortized fair value of assets as on 01/01/15 acquired on 01/01/14 [D] it is to record the amortization expenses during the year [Adj') it is convert the Holtz retained earnings balance by converting from intial value method to equity method

HOLTZ CORPORATION AND DIVINE INC Consolidated Income statement For year Ending December 31, 2015 1,022,250 390,000 395,450 Sales Cost of goods sold Operating Expenses Total expenses Consolidated Net Income Non controlling interest in CNI Controlling interest in CNI 785,450 236,800 17,960 218,840