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 Corporation				Devine, Inc.
Sales	$	(800,000	)		$	(379,500	)
Cost of goods sold		285,000				146,000
Operating expenses		299,000				130,500
Dividend income		(16,000	)			0
Net income	$	(232,000	)		$	(103,000	)
Retained earnings, 1/1/18	$	(777,000	)		$	(294,000	)
Net income (above)		(232,000	)			(103,000	)
Dividends declared		90,000				20,000
Retained earnings, 12/31/18	$	(919,000	)		$	(377,000	)
Current assets	$	238,500			$	177,000
Investment in Devine, Inc		536,000				0
Buildings and equipment (net)		870,000				357,000
Trademarks		137,000				188,000
Total assets	$	1,781,500			$	722,000
Liabilities	$	(542,500	)		$	(245,000	)
Common stock		(320,000	)			(100,000	)
Retained earnings, 12/31/18 (above)		(919,000	)			(377,000	)
Total liabilities and equities	$	(1,781,500	)		$	(722,000	)

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.

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

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

Answer 1

Consideration	536,000	80% of 100,000 shares @6.7
Common stock	(80,000)
Retained earning	(179,200)
Building	(57,000)
Trademark	(69,000)
Goodwill	150,800

NCI share in Post Acquisition Profits
	Retained Earnings	Profit for the year (current year RE- Previous year RE)	NCI @ 20%	Share of Parent @80%
On Acquisition	224,000	-	44,800
Dec-17	294,000	70,000	14,000	56,000
Dec-18	377,000	83,000	16,600	66,400
			75,400	122,400
NCI share in capital (20% of 100,000)			20,000
Non Controlling Interest			95,400

Consolidated Income Statement
	Holtz Corporation	Devine, Inc.	Consolidation Adjustments	Consolidated Amount	Notes
Sales	(800,000)	(379,500)		(1,179,500)
Cost of goods sold	285,000	146,000		431,000
Operating expenses	299,000	130,500		429,500
Depreciation on Building			11,400	11,400	$57,000/5 years
Amortization of Trade mark			6,900	6,900	$69,000/10 years
Dividend income	(16,000)	-	16,000	-
Net income	(232,000)	(103,000)		(300,700)
Dividend Declared	90,000	20,000	(16,000)	94,000
Net Income to be transferred to Equity	(142,000)	(83,000)		(206,700)
Share of non controlling interest (20% of Devine Inc)				(16,600)
Share of Parent				(190,100)

Consolidated Balance Sheet
	Holtz Corporation	Devine, Inc.	Consolidation Adjustments	Consolidated Amount	Notes
Current assets	238,500	177,000		415,500
Investment in Devine, Inc	536,000	-	(536,000)	-
Goodwill			150,800	150,800
Buildings and equipment (net)	870,000	357,000	34,200	1,261,200	57,000 less 2 years depreciation (11,400x2)
Trademarks	137,000	188,000	55,200	380,200	69,000 less 2 years depreciation (6,900x2)
Total assets	1,781,500	722,000		2,207,700
Liabilities	(542,500)	(245,000)		(787,500)
Common stock	(320,000)	(100,000)	100,000	(320,000)
Retained earnings	(919,000)	(377,000)	291,200	(1,004,800)	*See note below
Non Controlling Interest			(95,400)	(95,400)
Total liabilities and equities	(1,781,500)	(722,000)		(2,207,700)

*-377,000-122,400(Parent's share in subsidiary's income)+11,400x2 (building depreciation) + 6,900x2 (trademark amortization)

If instead the noncontrolling interest shares of Devine had traded for $4.50 surrounding Holtz’s acquisition date

Fair Value at the time of acquisition
Common stock	100,000
Retained earning	224,000
Building	57,000
Trademark	69,000
Fair value of assets	450,000

Considerations Paid	536,000
Non controlling interest	90,000	20,000 shares @ $4.5
	626,000
Less: Fair value of assets	450,000
Goodwill	176,000