Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.35 per share on January 1, 2014. The remaining 20 percent of Devine’s shares also traded actively at $6.35 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 $78,500 and a fully amortized trademark with an estimated 10-year remaining life had a $59,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $240,500. Following are the separate financial statements for the year ending December 31, 2015:

	Holtz	Devine
Sales	(721,000)	(321,500)
COGS	227,000	108,000
Operating expenses	296,000	118,500
Dividend income	(16,000)	0
Net income	(214,000)	(95,000)
RE 1/1/15	(765,000)	(310,500)
NI (above)	(214,000)	(95,000)
Dividends Declared	80,000	20,000
RE 12/31/15	(899,000)	(385,500)
Current assets	219,000	126,500
investment in Devine	508,000	0
Buildings and equipment (net)	902,500	344,000
Trademarks	162,000	242,000
Total assets	1,791,500	712,500
Liabilities	(572,500)	(227,000)
common stock	(320,000)	(100,000)
RE 12/31/15 (above)	(899,000)	(385,500
Total liabilities and equities	(1,791,500)	(712,500)

a. Prepare a worksheet to consolidate these two companies as of December 31, 2015.

b. Prepare a 2015 consolidated income statement for Holtz and Devine

c. If instead the noncontrolling shares of Devine had traded for $4.78 surrounding Holtz's acquisition date, what is the impact on goodwill?

Answer 1

HOLTZ CORPORATION AND DEVINE, INC.
Consolidation WorkSheet
For Year Ending December 31, 2018
			Consolidation Entries
	Holtz	Devine		Debit		Credit	Non controlling interest	Consolidated (Totals)
Sales	-$721,000	-$321,500						-$1,042,500
COGS	$227,000	$108,000						$335,000
Operating expenses	$296,000	$118,500	E	$21,600				$436,100
Dividend income	-$16,000	$0	I	$16,000				$0
Separate Company net Income	-$214,000	-$95,000						-$707,500
Consolidated Net income
NI attributable to noncontrolling interest (95000 - $21600) x 20%							-$14,680	$14,680.00
NI attributable to Holtz Corp								-$692,820
RE 1/1/15 (($310500 -385500) - $21600) x 80%	-$765,000	-$310,500	S	$310,500	C	$42,720		-$807,720
NI (above)	-$214,000	-$95,000						-$309,000
Dividends Declared	$80,000	$20,000			I	$16,000	4000	$80,000
RE 12/31/15	-$899,000	-385500						-$1,036,720
Current assets	$219,000	$126,500						$345,500
investment in Devine	$508,000	$0	C	$42,720	S
Buildings and equipment (net)	$902,500	$344,000			A
Trademarks	$162,000	$242,000
Total assets	$1,791,500
712500
Liabilities	-$572,500	-$227,000
common stock	-$320,000	-$100,000
RE 12/31/15 (above)	-$899,000
(385,500
Total liabilities and equities	-$1,791,500	-$712,500
Fair Value Allocation and Amortization
Consideration transferred by Holtz (100,000 x 80% x $6.35)	$508,000.00
Noncontrolling interest fair value	$127,000.00
Devine total fair value 1/1/14	$635,000.00
Devine book value 1/1/14 ($100,000 + $240,500)	$340,500.00
Fair value in excess of book value	$294,500.00
Excess fair value assigned to specific accounts based on fair value?		Remaining Life	Annual Excess Amortization
Building	$78,500.00	5	$15,700.00
Trademark	$59,000.00	10	$5,900.00
Goodwill	$157,000.00	indifinite
Total			$21,600.00