Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.70 per share on January 1, 2017. The remaining 20 percent of Devine's shares also traded actively at $6.70 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 $57,000 and a fully amortized trademark with an estimated 10-year remaining life had a $69,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $224,000. Following are the separate financial statements for the year ending December 31, 2018 Holtz Devine, Corporation S Inc. (379,500) 146,000 Sales Cost of goods sold Operating expenses Dividend income (800,000) 285,000 299,000 (16,000) 130,500 (232,000) Net income (103,000) (777,000 (232,000) 90,000 Retained earnings, 1/1/18 Net income (above) Dividends decla red $(294,000) (103,000) 20,000 (377,000) (919,000) Retained earnings, 12/31/18 Current assets 238,500 177,000 Investment in Devine, Inc Buildings and equipment (net) Trademarks 536,000 870,000 357,000 188,000 137,000 $ 1,781,50e Total assets 722,000 $ (245,000) (100, 000) (377,000) Liabilities (542,500) (320,000) (919,000) Common stock Retained earnings, 12/31/18 (above) (722,000) Total liabilities and equities (1,781,500) 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 $4.50 surrounding Holtz's acquisition date, what is the impact on goodwill?

Prepare a 2018 consolidated income statement for Holtz and Devine. (Enter all amounts as positive values.)

	HOLTZ CORPORATION AND DEVINE, INC. Consolidated Income Statement For Year Ending December 31, 2018 Sales Total expenses 0 $0 To noncontrolling interest To Holtz Corporation $0

If instead the noncontrolling interest shares of Devine had traded for $4.50 surrounding Holtz’s acquisition date, what is the impact on goodwill?

	Goodwill to

Answer 1

Fair Value Allocation and Amortization 22 23 Consideration transferred by Holtz (100000*6.70*80%) 24 536000 Noncontrolling interest fair value (100000*6.70*20%) Devine total fair value 1/1/17 127000 25 26 663000 Devine book value 1/1/17 (100000+224000) 27 -324000 Fair value in excess of book value 28 339000 29 Life Amortizations 30 Excess price allocated to undervalued 31 Building 57000 11400 32 5 Trademark 33 69000 10 6900 Goodwill 213000 0 34 0 35 18300 Explanation of Consolidation Entries Found on Worksheet 36

38 HOLTZ CORPORATION AND DEEVINE, INC. Consolidation Worksheet 39 For Year Ending December 31, 2012: 40 Non-controlling Consolidation entries Consolidated Totals 41 Accounts Holtz Corp. Devine Inc. Debit Credit interest 42 Sales 43 -800000 -379500 1179500 44 Cost of goods sold 285000 146000 431000 130500 (E) 0 (I Operating expenses Dividend income 447800 45 299000 18300 -16000 16000 46 47 Separate company net income -232000 -103000 300700 NCI in Devine's income 16940 48 16940 Holtz's interest in consolidated income 49 283760 50 Retained earnings, 1/1 Net income (above) 294000 (S) (C) 294000 51 -777000 30240 -807240 -232000 52 103000 283760 16000 (I) Dividends paid 90000 20000 4000 90000 53 Retained earnings, 12/31 919000 -377000 1001000 54 55 56 Current assets 238500 177000 415500 30240 Investment in Devine 536000 0 (C) 315200 (S) 57 58 251040 (A 0 Buildings and equipment (net) 357000 (A) 11400 (E) 6900 (E) 59 870000 45600 1261200 Trademarks 188000 (A) 60 137000 55200 373300 Goodwill A 213000 61 213000 Total assets 722000 2263000 62 1781500 333

Liabilities 64 -542500 -245000 -787500 Common stock 65 -100000 (S) 100000 -320000 -320000 66 Retained earnings, 12/31 (above) NCI in Devine, 1/1 -377000 -1001000 -919000 78800 (S) 62760 (A) 67 68 -141560 NCI in Devine, 12/31 69 -154500 -154500 Total liabilities and equities -2263000 70 -1781500 -722000 772340 772340 71 72 73 b) 0 Sales 1179500 74 Cost of goods sold 75 431000 76 447800 Operating expenses Total expenses 77 878800 78 Consolidated net income 300700 79 To 20% noncontrolling interest To Holtz Corporation 16940 80 283760 81 82 Consideration transferred by Holtz for 80 % of Devine 83 c) 536000 Noncontrolling interest fair value ($4.50 x 20,000 shares) 84 90000 Devine fair value 85 626000 Fair value of Devine's underlying net assets 86 450000 Goodwill 87 176000 88