Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.50 per share on January 1, 2017. The remaining 20 percent of Devine’s shares also traded actively at $7.50 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 $46,500 and a fully amortized trademark with an estimated 10-year remaining life had a $76,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $351,500.

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

	Holtz Corporation				Devine, Inc.
Sales	$	(786,000	)		$	(379,000	)
Cost of goods sold		291,000				118,000
Operating expenses		289,000				78,000
Dividend income		(16,000	)			0
Net income	$	(222,000	)		$	(183,000	)
Retained earnings, 1/1/18	$	(733,000	)		$	(421,500	)
Net income (above)		(222,000	)			(183,000	)
Dividends declared		90,000				20,000
Retained earnings, 12/31/18	$	(865,000	)		$	(584,500	)
Current assets	$	311,500			$	272,500
Investment in Devine, Inc		600,000				0
Buildings and equipment (net)		722,500				456,000
Trademarks		156,000				212,000
Total assets	$	1,790,000			$	940,500
Liabilities	$	(605,000	)		$	(256,000	)
Common stock		(320,000	)			(100,000	)
Retained earnings, 12/31/18 (above)		(865,000	)			(584,500	)
Total liabilities and equities	$	(1,790,000	)		$	(940,500	)

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.

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

3. If instead the noncontrolling interest shares of Devine had traded for $5.74 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	-786,000	-379,000						-$1,165,000.
COGS	291,000	118,000						$409,000.
Operating expenses	289,000	78,000	E	$16,900.				$383,900.
Dividend income	-16,000	0	I	$16,000.				$0.
Separate Company net Income	-222,000	-183,000						-$372,100.
Consolidated Net income
NI attributable to noncontrolling interest							-$39,980.	$39,980.00
NI attributable to Holtz Corp								-$332,120.
RE 1/1/18	-733,000	-421,500	S	$421,500.	C	$69,520.		-$802,520.
NI (above)	-222,000	-183,000						-$372,100.
Dividends Declared	90,000	20,000			I	$16,000.	$4,000.00	$90,000.
RE 12/31/18	-865,000	-584,500						-$1,084,620.
Current assets	311,500	272,500						$584,000.
Investment in Devine	600,000	0	C	$69,520.	S	$417,200.		$252,320.00
						$252,320.00
Buildings and equipment (net)	722,500	456,000	A	$37,200.	E	$9,300.00		$1,206,400.
Trademarks	156,000	212,000	A	$68,400.	E	$7,600.00		$428,800.
Goodwill	0	0	A	$176,000.				$176,000.
Total assets	$1,790,000.	$940,500.						$2,647,520.
Liabilities	-605,000	-256,000						-$861,000.
common stock	-320,000	-100,000	S	$100,000.				-$320,000.
RE 12/31/18 (above)	-865,000	-584,500						-$1,296,960.
NCI in Devne, 1/1						$104,300.
NCI in Devne, 12/31					S	$29,280.	-$133,580.	($169,560.00)
Total liabilities and equities	-$1,790,000.	-$940,500.		$905,520.		$905,520.	($169,560.00)	-$2,647,520.
Fair Value Allocation and Amortization
Consideration transferred by Holtz    (100,000 x 80% x $7.50)	$600,000.00
Noncontrolling interest fair value (100,000 x 20% x $7.520	$150,000.00
Devine total fair value 1/1/18	$750,000.00
Devine book value 1/1/18     ($100,000 + $351,500)	$451,500.00
Fair value in excess of book value	$298,500.00
Excess fair value assigned to specific accounts based on fair value		Remaining Life	Annual Excess Amortization
Building	$46,500.00	5	$9,300.00
Trademark	$76,000.00	10	$7,600.00
Goodwill	$176,000.00	indifinite
Total			$16,900.00
b)
HOLTZ CORPORATION AND DEVINE, INC.
Consolidated Income Statement
For Year Ending December 31, 2018
Sales		$  1,165,000.00
Cost of goods sold	$        409,000.00
Operating expenses	$        383,900.00
Total expenses		$     792,900.00
Consolidated net income		$     372,100.00
To 20% noncontrolling interest		$      (39,980.00)
To Holtz Corporation		$     332,120.00
Consideration transferred by Holtz for 80% of Devine	$        600,000.00
Noncontrolling interest fair value ($5.74 × 20,000 shares)	$        114,800.00
Devine fair value	$        714,800.00
Fair value of Devine’s underlying net assets	$        574,000.00
Goodwill	$        140,800.00
Goodwill declines to $140,800