Problem

The Krause Corporation acquired 80 percent of the 100,000 outstanding voting shares of Lea...

The Krause Corporation acquired 80 percent of the 100,000 outstanding voting shares of Leahy, Inc., for $6.30 per share on January 1, 2011. The remaining 20 percent of Leahy’s shares also traded actively at $6.30 per share before and after Krause’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Leahy’s underlying accounts except that a building with a 5-year life was undervalued by $45,000 and a fully amortized trademark with an estimated 10-year remaining life had a $60,000 fair value. At the acquisition date, Leahy reported common stock of $100,000 and a retained earnings balance of $280,000.

Following are the separate financial statements for the year ending December 31, 2012:

	Krause Corporation	Leahy, Inc.
Sales	$ (584000)	$(250,000)
Cost of goods sold	194,000	95,000
Operating expenses	246,000	65,000
Dividend income	(16,000)	–0–
Net income	$(160,000)	$ (90,000)
Retained earnings, 1/1/12	$(700,000)	$(350,000)
Net income (above)	(160,000)	(90,000)
Dividends paid	70,000	20,000
Retained earnings, 12/31/12	$(790,000)	$(420,000)
Current assets	$296,000	$ 191,000
Investment in Leahy, Inc	504,000	–0–
Buildings and equipment (net)	680,000	390,000
Trademarks	100,000	144,000
Total assets	$1,580,000	$ 725,000
Liabilities	$(470,000)	$(205,000)
Common stock	(320,000)	(100,000)
Retained earnings, 12/31/12 (above)	(790,000)	(420,000)
Total liabilities and equities	$(1,580,000)	$(725,000)

a. Prepare a worksheet to consolidate these two companies as of December 31, 2012.

b. Prepare a 2012 consolidated income statement for Krause and Leahy.

c. If instead the noncontrolling interest shares of Leahy had traded for $4.85 surrounding Krause’s acquisition date, how would the consolidated statements change?