Question

The Holtz Corporation acquired 80 percent of the 100.000 outstanding voting shares of Devine, Inc., for $7:10 per share on January 1. 2020. The remaining 20 percent of Devine's shares also traded actively at $7.10 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 $50,000 and a fully amortized trademark with an estimated 10-year remaining life had a $80,000 fair value. At the acquisition date. Devine reported common stock of $100,000 and a retained earnings balance of $292,000. Following are the separate financial statements for the year ending December 31, 2021: Sales Cost of goods sold Operating expenses Dividend income Net income Retained earnings, 1/1/21 Net income (above) Dividends declared Retained earnings, 12/31/21 Current assets Investment in Devine, Inc. Buildings and equipment (net) Trademarks Total assets Liabilities Connon stock Retained earnings, 12/31/21 (above) Total liabilities and equities Holtz Corporation $ (761,680) 267,600 258, eee (16,eee) $ (252,eee) $ (744,688) (252,688) 80,eee $ (916,000) $ 294, een 568,000 810,000 164,000 $ 1,836, eee $ (680, eee) (320,eee) (916,688) $ (1,836,000) Devine, Inc. $ (396,750) 124, eee 114,750 @ $ (158,688) $ (362,688) (158,888) 20,000 $ (500, eee) $ 161,00 483, eee 188, eee $ 824,000 $ (224,688) (188,eee) (500, eee) $ (824,000) At year-end, there were no intra-entity receivables or payables. a. Prepare a worksheet to consolidate these two companies as of December 31, 2021. b. Prepare a 2021 consolidated income statement for Holtz and Devine. c.lf instead the noncontrolling Interest shares of Devine had traded for $5.22 surrounding Holtz's acquisition date, what is the impact on goodwill?

Please show me how to get the correct answers. Thank you.

Answer 1

a.

Calculation of Goodwill on the date of acqusition as on 1/1/2020
Fair value transfer by Holtz corporation for 80% share (100,000 shares * 80% * 7.10)	568000
Fair value of Non-controlling Interest (100,000 shares * 20% * $7.10)	142000
Total Fair value of Devine ltd	710000
Less: Book value
Common Stock	100000
Retained Earnings 1/1/20	292000
Excess of Fair value over Book value	318000
Allocation of excess Fair value to:
Building	50000
Trademark	80000
Goodwill (318,000 - 50,000 - 80,000)	188000

Amortization and carrying value of Excess fair value of Assets
Assets	Value as on 1/1/20 (A)	life in years (B)	Amortization per year C = (A/B)	Value as on 1/1/21 D (A-C)
Building	50000	5	10000	40000
Trademark	80000	10	8000	72000
Goodwill	188000	-	-	188000
Total	318000		18000	300000

HOLTZ CORPORATION AND DEVINE, INC.
Consolidation Worksheet
For the year ended December 31,2021
			Consolidation Entries
Accounts	Holtz Corporation	Devine Inc		Debit	Credit	Non-Controlling Interest	Consolidated Total
Sales	-761000	-396750					-1157750
Cost of Goods sold	267000	124000					391000
Operating Expenses	258000	114750	B	18000			390750
Dividend income	-16000	0	C	16000			0
Separate company Net income	-252000	-158000
Consolidated net Income							-376000
NI attributable to non Controlling interest						-28000	28000
NI attributable to Holtz corp.							-348000
Retained Earnings 1/1/21	-744000	-362000	E	362000	41600		-785600
Net Income	-252000	-158000					-348000
Dividends declared	80000	20000			16000	4000	80000
Retained Earnings, 12/31/21	-916000	-500000					-1053600
Current Assets	294000	161000					455000
Investment in Devine Inc.	568000	0		41600	609600		0
Building and equipment (net)	810000	483000		40000	10000		1323000
Trademarks	164000	180000		72000	8000		408000
Goodwill				188000			188000
Total Assets	1836000	824000					2374000
Liabilities	-600000	-224000					-824000
Common stock	-320000	-100000		100000			-320000
Retained Earnings, 12/31/21	-916000	-500000					-1053600
NCI in Devine, 1/1					152400	-152400
NCI in Devine, 12/31						-176400	-176400
Total Liabilities and Equities	-1836000	-824000		837600	837600		-2374000

Net income attributable to Non Controlling Interest
Net income of Devine	-158000
Less: Excess Amortization	18000
Adjusted Net income of Devine	-140000
Non Controlling share 20% (17600 * 20%)	-28000

Adjustment for Conversion from intial method to equity method
Change in Retained earnings of Devine from 1/1/20-21 (421,500 - 351,500)	70000
Less: Excess Amortization	18000
Adjusted increase in Reatined Earnings of Devine Ltd	52000
Holtz share 80% (52,000 * 80%)	41600

Adjusted credit balance after combining multiple entries
	Investment in Holtz	Non Controlling Interest 01/01/21	Total
	80%	20%	100%
Entry E
Common stock	80000	20000	100000
Retained earnings 01/01/21	289600	72400	362000
Entry A
Building amd equipment, net	32000	8000	40000
Trademark	57600	14400	72000
Goodwill	150400	37600	188000
Total	609600	152400	762000

b.

HOLTZ CORPORATION AND DEVINE, INC.
Consolidated Income Statement
For the year ended December 31, 2021
Sales		1157750
Cost of goods sold	391000
Operating expenses	390750
Total expenses		781750
Consolidated net income		376000
To non controlling interest		28000
To Holtz Corporation		348000

c.

If Non controlling interest shares of devine had traded for $5.22 per share
Fair value transfer by Holtz corporation for 80% share (100,000 shares * 80% * 7.10)	568000
Fair value of Non-controlling Interest (100,000 shares * 20% * $5.22)	104400
Total Fair value of Devine Ltd	672400
Less: Book Value
Common Stock	100000
Retained Earnings 1/1/20	292000
Excess of Fair value over Book value	280400
Allocation of excess Fair value to:
Building	50000
Trademark	80000
Goodwill (280,400 - 50,000 - 80,000)	150400

Impact on Goodwill:

Goodwill decrease to $150,400.