Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.90 per share on January 1, 2014. The remaining 20 percent of Devine’s shares also traded actively at $6.90 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 life was undervalued by $52,500 and a fully amortized trademark with an estimated 10-year remaining life had a $71,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $249,500.

Following are the separate financial statements for the year ending December 31, 2015:

		Holtz Corporation				Devine, Inc.
Sales		$	(837,000	)		$	(394,500	)
Cost of goods sold			292,000				154,000
Operating expenses			324,000				79,500
Dividend income			(16,000	)			0
Net income		$	(237,000	)		$	(161,000	)
Retained earnings, 1/1/15		$	(767,000	)		$	(319,500	)
Net income (above)			(237,000	)			(161,000	)
Dividends declared			80,000				20,000
Retained earnings, 12/31/15		$	(924,000	)		$	(460,500	)
Current assets		$	323,500			$	253,500
Investment in Devine, Inc			552,000				0
Buildings and equipment (net)			857,500				408,000
Trademarks			151,000				195,000
Total assets		$	1,884,000			$	856,500
Liabilities		$	(640,000	)		$	(296,000	)
Common stock			(320,000	)			(100,000	)
Retained earnings, 12/31/15 (above)			(924,000	)			(460,500	)
Total liabilities and equities		$	(1,884,000	)		$	(856,500	)

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

a.	Prepare a worksheet to consolidate these two companies as of December 31, 2015. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

     

b.	Prepare a 2015 consolidated income statement for Holtz and Devine. (Enter all amounts as positive values.)

c.	If instead the noncontrolling interest shares of Devine had traded for $4.73 surrounding Holtz’s acquisition date, what is the impact on goodwill?

Answer 1

a.

Consolidation entries
Consolidation Entry 1
Particulars	Debit($)	Credit($)
Common Stock (Devine Inc)	100000
Retained Earnings(Devine Inc) on 1.1.15	319500
Investment in Devine Inc (80%)		335600
NCI in Devine Inc (20%)		83900
(to eliminate the beginning retained earnings and common stock)
Consolidation Entry 2
Equity earnings from subsidiary (80% of 161000)	128800
Investment in Devine Inc		128800
(to eliminate intra entity earnings)
Consolidation Entry 3
Building	52500
Goodwill	340500
Trademarks		124000
Investment in Devine Inc (80%)		215200
NCI in Devine Inc (20%)		53800
(To record unamortised excess Fair value, Goodwill, and its allocation to NCI)
Consolidation Entry 4
Investment in Devine Inc	16000
Dividends paid		16000
(to eliminate intra entity transactions)
Consolidation Entry 5
Trademarks	12400
Amortisation expense		12400
(To recognise the effect of excess value allocation to trademarks)