The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.10
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, 2020. The remaining 20 percent of Devine’s shares also traded actively at $7.10 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 $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, 2021:
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, 1/1/21 | $ | (744,000 | ) | $ | (362,000 | ) | |
Net income (above) | (252,000 | ) | (158,000 | ) | |||
Dividends declared | 80,000 | 20,000 | |||||
Retained earnings, 12/31/21 | $ | (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, 12/31/21 (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.
Prepare a worksheet to consolidate these two companies as of December 31, 2021.
Prepare a 2021 consolidated income statement for Holtz and Devine.
If instead the noncontrolling interest shares of Devine had traded for $5.22 surrounding Holtz’s acquisition date, what is the impact on goodwill?
Fundamentals of Advanced Accounting
ISBN: 978-0077862237
6th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik