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
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 $6.00 per share both before and after the acquisition by Holland. Zeeland's acquisition date balance sheet follows:
Current assets$14,500Liabilities$219,500Property and equipment (net)248,500Common stock100,000Patents196,500Retained earnings140,000$459,500$459,500
On January 1, 2017, Holland assessed the carrying amount of Zeeland's equipment (5-year remaining life) to be undervalued by $60,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $290,600. Zeeland's acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland's acquisition-date fair value over its book value was attributed to goodwill.
The companies' financial statements for the year ending December 31, 2018, follow:HollandZeelandSales$(699,000)$(433,500)Cost of goods sold354,500202,500Depreciation expense87,50033,500Amortization expense14,50020,500Other operating expenses54,00062,000Equity in Zeeland earnings(44,364)0Separate company net income$(232,864)$(115,000)Retained earnings 1/1$(820,700)$(310,000)Net income(232,864)(115,000)Dividends declared50,00030,000Retained earnings 12/31$(1,003,564)$(395,000)Current assets$125,500$86,500Investment in Zeeland583,7280Property and equipment (net)842,000264,000Patents150,000152,500Total assets$1,701,228$503,000Liabilities$(377,664)$(8,000)Common stock - Holland(320,000)0Common stock - Zeeland0(100,000)Retained earnings 12/31(1,003,564)(395,000)Total liabilities and owners equity$(1,701,228)$(503,000)
At year-end, there were no intra-entity receivables or payables.
- Compute the amount of goodwill recognized in Holland's acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling interest.
- Show how Holland determined its December 31, 2018, Investment in Zeeland account balance.
- Prepare a worksheet to determine the amounts that should appear on Holland's December 31, 2018, consolidated financial statements.
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