Question
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.10 per share on January 1, 2014. The remaining
The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.10 per share on January 1, 2014. The remaining 20 percent of Devines shares also traded actively at $7.10 per share before and after Holtzs acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Devines underlying accounts except that a building with a 5-year life was undervalued by $50,000 and a fully amortized trademark with an estimated 10-year remaining life had a $80,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $292,000. |
Following are the separate financial statements for the year ending December 31, 2015: |
Holtz Corporation | Devine, Inc. | ||||||||
Sales | $ | (761,000 | ) | $ | (396,750 | ) | |||
Cost of goods sold | 267,000 | 124,000 | |||||||
Operating expenses | 258,000 | 114,750 | |||||||
Dividend income | (16,000 | ) | 0 | ||||||
Net income | $ | (252,000 | ) | $ | (158,000 | ) | |||
Retained earnings, 1/1/15 | $ | (744,000 | ) | $ | (362,000 | ) | |||
Net income (above) | (252,000 | ) | (158,000 | ) | |||||
Dividends declared | 80,000 | 20,000 | |||||||
Retained earnings, 12/31/15 | $ | (916,000 | ) | $ | (500,000 | ) | |||
Current assets | $ | 294,000 | $ | 161,000 | |||||
Investment in Devine, Inc | 568,000 | 0 | |||||||
Buildings and equipment (net) | 810,000 | 483,000 | |||||||
Trademarks | 164,000 | 180,000 | |||||||
Total assets | $ | 1,836,000 | $ | 824,000 | |||||
Liabilities | $ | (600,000 | ) | $ | (224,000 | ) | |||
Common stock | (320,000 | ) | (100,000 | ) | |||||
Retained earnings, 12/31/15 (above) | (916,000 | ) | (500,000 | ) | |||||
Total liabilities and equities | $ | (1,836,000 | ) | $ | (824,000 | ) | |||
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.)
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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 $5.22 surrounding Holtzs acquisition date, what is the impact on goodwill? |
HOLTZ CORPORATION AND DEVINE, INC Consolidation Worksheet For Year Ending December 31, 2015 Consolidation Entries consolidated nterest Totals Debit credit Holtz Devine Inc Corporation Accounts Sales 761,000 (396,750) 267.000 124,000 Cost of goods sold 258.000 114.750 operating expenses Separate company net income (252,000) (158,000) Consolidated net income 0 NCI in consolidated net income Holtzs interest in Consolidated net income Retained earnings, 1/1 (744,000) (362,000) (252,000) (158,000) 80,000 20,000 Retained earnings, 1231 (916,000) (500,000) Current assets 294,000 161,000 Investment in Devine 568,000 810,000 483.000 Buildings and equipment (net) 164.000 180.000 Trademarks Goodwill 11.036 000 824.000 Total assets Liabilities (600,000) (224,000) (320,000) (100,000) 12131 (916,000) (500,000) Retained earnings, NCI in Devine, 1/1 NCI in Devine. 12131 0 0 0 Total liabilities and equities (1,836,000) (824,000)
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