Question

The Holtz Corporation acquired 80 percent of the 100.000 outstanding voting shares of Devine, Inc., for $7.35 per share on January 1, 2017. The remaining 20 percent of Devine's shares also traded actively at $7.35 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 future life was undervalued by $70,000 and a fully amortized trademark with an estimated 10-year remaining life had a $70,000 fair value. At the acquisition date, Devine reported common stock of $100.000 and a retained earnings balance of $264.000. Following are the separate financial statements for the year ending December 31, 2018: Devine, Inc. $(371,000) 173,000 96,000 Sales Cost of goods sold Operating expenses Dividend income Net income Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Current assets Investment in Devine, Inc Buildings and equipment (net) Trademarks Total assets Liabilities Common stock Retained earnings, 12/31/18 (above) Total liabilities and equities Holtz Corporation $ (741,000) 218,000 292,000 (16,000) $ (247,000) $ (792,000) (247,000) 50,000 $ (989,000) 468,000 588,000 842,500 123,000 $ 2,021,500 $ (712,500) (320,000) (989,000) $(2,021,500) $(102,000) $(334,000) (102,000) 20,000 $(416,000) $ 176,000 379,000 233,000 $ 788,000 $(272,000) (100,000) (416,000) $(788,000) At year-end, there were no intra-entity receivables or payables. a. Prepare a worksheet to consolidate these two companies as of December 31, 2018. b. Prepare a 2018 consolidated income statement for Holtz and Devine. c. If instead the noncontrolling interest shares of Devine had traded for $5.04 surrounding Holtz's acquisition date, what is the impact on goodwill?

Answer 1

Fair Value Allocation and Amortization 22 23 Consideration transferred by Holtz (100000*7.35*80%) 588,000 24 Noncontrolling interest fair value (100000*7.35*20%) 25 147,000 Devine total fair value 1/1/17 Devine book value 1/1/17. (100000+264000) 26 735,000 (364,000) 27 Fair value in excess of book value 28 371,000 29 Life Amortizations 30 Excess price allocated to undervalued 31 Building 32 70,000 14,000 Trademark 7,000 33 70,000 10 Goodwill 231,000 Indefinite 34 21,000 35

38 HOLTZ CORPORATION AND DEVINE, INC. Consolidation Worksheet 39 For Year Ending December 31, 2018 40 Non-controlling Consolidation entries Consolidated Totals 41 Holtz Corp. Devine Inc. Credit Accounts Debit interest 42 (741,000) (371,000) Sales (1,112,000) 43 Cost of goods sold 218,000 44 173,000 391,000 96,000 (E) 409,000 45 Operating expenses 292,000 21,000 Dividend income (16,000) (1) 46 16,000 (102,000) (247,000) 47 Separate company net income Consolidated Net income (312,000) 48 (24,600) NI attributable to noncontrolling interest 49 24,600 NI attributable to Holtz Corp. (287,400) 50 Retained earnings, 1/1 Net income (above) (792,000) (334,000) (S) (102,000) 39,200 (C) (831,200) 51 334,000 (247,000) (287,400) 52 Dividends paid 20,000 16,000 (1) 50,000 53 50,000 4,000 Retained earnings, 12/31 (416,000) (989,000) (1,068,600) 54 55 Current assets 644,000 56 468,000 176,000 347,200 (S) (C) 57 Investment in Devine 588,000 39,200 280,000 (A) 58 Buildings and equipment (net) 379,000 (A) 14,000 (E) 842,500 59 56,000 1,263,500 233,000 (A) Trademarks 63,000 7,000 (E) 60 123,000 412,000 Goodwill (A) 231,000 61 231,000 Total assets 62 2,021,500 788,000 2,550,500

(712,500) (984,500) (320,000) (1,068,600) Liabilities (272,000) 64 (100,000) (S) (416,000) Common stock (320,000) 65 100,000 Retained earnings, 12/31 (above) NCI in Devine, 1/1 (989,000) 66 86,800 (S) 67 70,000 (A) (156,800) 68 (177,400) NCI in Devine, 12/31 (177,400) 69 860,200 Total liabilities and equities (2,021,500) (788,000) (2,550,500) 70 860,200 71 72 b) Sales 73 1,112,000 Cost of goods sold 391,000 74 409,000 75 Operating expenses Total expenses 76 800,000 Consolidated net income 312.000 77 20% noncontrolling interest 24,600 78 controlling interest To Holtz Corporation 287,400 79 80 312,000 81 82 83 c) Consideration transferred by Holtz for 80% of Devine 588,000 Noncontrolling interest fair value ($5.04 x 20,000 shares) 84 100,800 Devine fair value 85 688,800 Fair value of Devine's underlying net assets 86 504,000 Goodwill 87 184,800 88

If the non controlling interest fair value was 5.04 per share at the acquisition date,then goodwill delines to 184800 89 90 91 Note; In the question in part C value of shares traded is given at 5.04 whereas below it was given at 4.76.I have solved with 92 both parts 93 94 95 Consideration transferred by Holtz for 80% of Devine 588,000 Noncontrolling interest fair value ($4.76 x 20,000 shares) 96 95,200 97 Devine fair value 683,200 Fair value of Devine's underlying net assets 98 476,000 99 Goodwill 207,200 100 If the non controlling interest fair value was 4.76 per share at the acquisition date,then goodwill delines to207200 101 102 103