On January 1, 2017, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders
Question:
On January 1, 2017, Holland Corporation paid $8 per share to a group of Zeeland Corporation shareholders to acquire 60,000 shares of Zeeland’s outstanding voting stock, representing a 60 percent ownership interest. The remaining 40,000 shares of Zeeland continued to trade in the market close to its recent average of $7.00 per share both before and after the acquisition by Holland. Zeeland’s acquisition date balance sheet follows:
Current assets | $ | 14,900 | Liabilities | $ | 225,500 | ||
Property and equipment (net) | 288,900 | Common stock | 100,000 | ||||
Patents | 201,700 | Retained earnings | 180,000 | ||||
$ | 505,500 | $ | 505,500 | ||||
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On January 1, 2017, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $64,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $345,200. Zeeland’s acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland’s acquisition-date fair value over its book value was attributed to goodwill.
The companies’ financial statements for the year ending December 31, 2018, follow:
Holland | Zeeland | ||||||
Sales | $ | (745,800 | ) | $ | (437,500 | ) | |
Cost of goods sold | 378,100 | 204,500 | |||||
Depreciation expense | 93,500 | 33,100 | |||||
Amortization expense | 14,900 | 20,100 | |||||
Other operating expenses | 55,600 | 60,800 | |||||
Equity in Zeeland earnings | (43,008 | ) | 0 | ||||
Separate company net income | $ | (246,708 | ) | $ | (119,000 | ) | |
Retained earnings 1/1 | $ | (821,100 | ) | $ | (320,800 | ) | |
Net income | (246,708 | ) | (119,000 | ) | |||
Dividends declared | 50,000 | 30,000 | |||||
Retained earnings 12/31 | $ | (1,017,808 | ) | $ | (409,800 | ) | |
Current assets | $ | 125,900 | $ | 90,500 | |||
Investment in Zeeland | 561,096 | 0 | |||||
Property and equipment (net) | 846,000 | 268,000 | |||||
Patents | 150,800 | 156,500 | |||||
Total assets | $ | 1,683,796 | $ | 515,000 | |||
Liabilities | $ | (345,988 | ) | $ | (5,200 | ) | |
Common stock - Holland | (320,000 | ) | 0 | ||||
Common stock - Zeeland | 0 | (100,000 | ) | ||||
Retained earnings 12/31 | (1,017,808 | ) | (409,800 | ) | |||
Total liabilities and owners equity | $ | (1,683,796 | ) | $ | (515,000 | ) | |
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At year-end, there were no intra-entity receivables or payables.
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Compute the amount of goodwill recognized in Holland’s acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling interest.
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Show how Holland determined its December 31, 2018, Investment in Zeeland account balance.
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Prepare a worksheet to determine the amounts that should appear on Holland’s December 31, 2018, consolidated financial statements.
rev: 04_02_2019_QC_CS-163790
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ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni