Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.10 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $6.10 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 $67,500 and a fully amortized trademark with an estimated 10-year remaining life had a $61,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $149,500.

Following are the separate financial statements for the year ending December 31, 2018:

	Holtz Corporation				Devine, Inc.
Sales	$	(708,000	)		$	(350,250	)
Cost of goods sold		237,000				116,000
Operating expenses		311,000				74,250
Dividend income		(16,000	)			0
Net income	$	(176,000	)		$	(160,000	)
Retained earnings, 1/1/18	$	(736,000	)		$	(219,500	)
Net income (above)		(176,000	)			(160,000	)
Dividends declared		90,000				20,000
Retained earnings, 12/31/18	$	(822,000	)		$	(359,500	)
Current assets	$	139,000			$	175,500
Investment in Devine, Inc		488,000				0
Buildings and equipment (net)		892,000				350,000
Trademarks		180,000				210,000
Total assets	$	1,699,000			$	735,500
Liabilities	$	(557,000	)		$	(276,000	)
Common stock		(320,000	)			(100,000	)
Retained earnings, 12/31/18 (above)		(822,000	)			(359,500	)
Total liabilities and equities	$	(1,699,000	)		$	(735,500	)

At year-end, there were no intra-entity receivables or payables.

1. Prepare a worksheet to consolidate these two companies as of December 31, 2018.

1. Prepare a 2018 consolidated income statement for Holtz and Devine.

1. If instead the noncontrolling interest shares of Devine had traded for $3.78 surrounding Holtz’s acquisition date, what is the impact on goodwill?

Consolidation Entries Holtz Devine Inc. Noncontrolling Interest Consolidated Totals Accounts Corporation Debit Credit $ (1,058,250) $ (708,000) Sales (350,250) 116,000 Cost of goods sold 237,000 353,000 Operating expenses 311,000 74,250 19,600 404,850 Dividend income (16,000) 0 16,000 0 $ (176,000) Separate company net income (160,000) Consolidated net income (300,400) NI attributable to noncontrolling interest 0 NI attributable to Holtz Corp. (300,400) $ (736,000) Retained earnings, 1/1 219,500 40,320 (776,320) |(219,500) (160,000) Net income (176,000) (280,800) Dividends declared 20,000 16,000 90,000 90,000 4,000 S (822,000) S (967,120) Retained earnings, 12/31 (359,500) $ 175,500 Current assets S 139,000 314,500 367,600 Investment in Devine 488,000 0 40,320 0 1,282,500 Buildings and equipment (net) 892,000 350,000 54,000 210,000 54,900 Trademarks 180,000 438,800 Goodwill 350,600 350,600 $ 1,699,000 $735,500 2,386,400 Total assets $ (557,000) Liabilities S (833,000) (276,000) (320,000) Common stock (100,000) 100,000 (320,000) Retained earnings, 12/31 (822,000) (359,500) (967,120) NCI in Devine, 1/1 91,900 NCI in Devine, 12/31 4,000 (175,680) S S ( 1,699,000) S (2,295,800) $ 854,920 $ 515,820 Total liabilities and equities (735,500) Required A Required B > Required A Required B Required C 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 Operating expenses Cost of goods sold Total expenses Consolidated net income To noncontrolling interest 0 To Holtz Corporation Required A Required C Complete this question by entering your answers in the tabs below. Required A Required B Required C surrounding Holtz's acquisition date, what If instead the noncontrolling interest shares of Devine had traded for $3.7 impact on gwill? t Goodwill decreases to

Answer 1

Calculation of Goodwill on the date of acquisition as on 1/1/2017 Fair value transfer by Holtz Corporation for 80 % share (100,000 Shares x 80 % x 6.10) Fair value of Non Controlling Interest (100,000 shares x 20% x 6.10) 488,000 122,000 Total Fair Value of Devine Itd 610,000 Less: Book Value Common Stock 100,000 Retained Earnings 1/1/17 149,500 Excess of Fair value over book Value 360,500 Allocation of Excess Fair value to: Building 67,500 Trademark 61,000 Goodwill (360,500-67,500- 61,000) 232,000 Amortization and Carrying Value of Excess fair value of Assets Value as on Amortization per Value as on life in |1/1/2018 Assets 1/1/2017 (A) years (B) year C (A/B) (A-C) D Building 67,500 5 13,500 54,000 Trademark 61,000 10 6,100 54,900 Goodwill 232,000 232,000 Total 360,500 19,600 340,900

HOLTZ CORPORATION AND DIVINE INC. Consolidated Worksheet For the year Ending December 31, 2018 Consolidation Non Controlling Consolidated Interest Debit Credit Holtz Corporation Divine Inc Accounts Totals (708,000) Sales (350,250) (1,058,250) Cost of goods sold 237,000 116,000 353.000 Operating expenses Dividend Income D 311,000 74,250 19,600 404,850 (16,000) Cl 16.000 (176,000) (160,000) Separate Company Net income Consolidated Net Income (300,400) NI attributable to Controlling Interest 28,080 (28,080) (272,320 NI attributable to Holtz Corp. Retained Earnings 1/1 Net Income (219,500) [E (160,000) [ADJ (776,320) (272,320) (736,000) 219,500 40,320 (176,000) Dividends Declared 16,000 [C] 90,000 20,000 4,000 90,000 (822,000) (958,640) Retained Earnings 12/31 (359,500) Current Assets 139,000 175,500 314,500 [E+A x 80% [ADJ] 528,320 Investment in Divine 488.000 40,320 Building and equipments, net Trademarks [A] [D) 892,000 350,000 54,000 13,500 1,282,500 [D) [A] 180,000 210,000 54,900 6,100 438,800 Goodwill [A] 232,000 232,000 1,699,000 735,500 Total Assets 2,267,800 333

Liabilities (557,000) (276,000) (100,000) [E] (833,000) Common stock (320,000) (320,000) 100,000 Retained Earnings 12/31 (822,000) (359,500) (958,640) [E+A] x 20% (132,080 Divine, 1/1 NCI 132,080 NCI in Divine, 12/31 (156,160) (156,160) (1,699,000) (2,267,800) (735,500) Total liabilites and equity 736,320 736,320 Working Notes [Adj. JAdjustment for Conversion from Intial method to equity Method Change in Retained earnings of Divine from 1/1/2014 to 01/01/18 (421,500 351,500) 70,000 Less: Excess Amortization 19,600 Adjusted increase in Retained Earnings of Divine Ltd 50,400 Holtz share 80% (50,400 x 80% ) 40,320 Net Income attributable to Non Controlling Interest Net Income of Divine 160,000 19,600 Less: Excess Amortization Adjusted Net Income of Divine 140,400 Non Controlling Share 20 % ( 140 ,1000 x 20%) 28,080 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 01/01/18) x 20% ] Investment in Devine:[(Common Stock + Retained Earnigns 01/01/18) x 80%] [A] it is to record the unamortized fair value of assets as on 01/01/18 acquired on 01/01/2017 [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

Adjusted Credit Balance after combining multiple Entries Noncontrolling Interest 01/01/18 Investment In Total Holtz 100% 80% 20% Entry [E] Common stock 80,000 100,000 20,000 Retained Earnings 01/01/18 219,500 175,600 43,900 Entry [A] 54,000 Building and equipments, net 10,800 43,200 Trademark 10,980 54,900 43,920 Goodwill 185,600 232,000 46,400 660,400 Total 528,320 132,080

HOLTZ CORPORATION AND DIVINE INC Consolidated Income statement For year Ending December 31, 2018 Sales 1,058,250 Cost of goods sold 353,000 404,850 Operating Expenses Total expenses 757,850 Consolidated Net Income 300,400 To non controlling interest 28,080 To Holtz corporation 272,320 C) if Non controlling interest shares of Devine had traded for $3.78 per share Fair value transfer by Holtz Corporation for 80 % share (100,000 Shares x 80% x 6.10) Fair value of Non Controlling Interest (100,000 x 20 % x 3.78) 488,000 75,600 Total Fair Value of Devine Itd 563,600 Less: Book Value Common Stock 100,000 Retained Earnings 1/1/17 149,500 Excess of Fair value over book Value 314,100 Allocation of Excess Fair value to: Building 67,500 Trademark 61,000 185,600 Goodwill (314,100-67,500-61,000) Impact on Goodwill Goodwill decrease to $185,600