Question

The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $6.90 per share on January 1, 2017. The remaining 20 percent of Devine's shares also traded actively at $6.90 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 $52,500 and a fully amortized trademark with an estimated 10-year remaining life had a $71,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $249,500. Following are the separate financial statements for the year ending December 31, 2018: Devine, Inc. $ (394,500) 154,000 79,500 Sales Cost of goods sold Operating expenses Dividend income Net income Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Current assets Investment in Devine, Inc Buildings and equipment (net) Trademarks Total assets Liabilities Common stock Retained earnings, 12/31/18 (above) Total liabilities and equities Holtz Corporation $ (837,000) 292,000 324,000 (16,000) $ (237,000) $ (767,000) (237,000) 80,000 $ (924,000) 323,500 552,000 857,500 151,000 $ 1,884,000 $ (640,000) (320,000) (924,000) $(1,884,000) $ (161,000) $ (319,500) (161,000) 20,000 $ (460,500) $ 253,500 0 408,000 195,000 $ 856,500 $ (296,000) (100,000) (460,500) $ (856,500)

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.

Answer 1

Fair Value Allocation and Amortization Consideration transferred by Holtz (100000*6.90*80%) Noncontrolling interest fair value (100000*6.90*20%) Devine total fair value 1/1/17 Devine book value 1/1/17.(100000+249500) Fair value in excess of book value 552,000 138,000 690,000 (349,500) 340,500 Life Amortizations Excess price allocated to undervalued Building Trademark Goodwill 52,500 71,000 217,000 5 10,500 107,100 Indefinite 17,600

Consolidated Totals Non-controlling interest Credit HOLTZ CORPORATION AND DEVINE, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation entries Holtz Corp. Devine Inc. Debit (837,000) (394,500) 292,000 154,000 324,000 79,500 (E) 17,600 (16,000) 16,000 (237,000) (161,000) (1,231,500) 446,000 421,100 Accounts Sales Cost of goods sold Operating expenses Dividend income Separate company net income Consolidated Net income NI attributable to noncontrolling interest NI attributable to Holtz Corp. Retained earnings, 1/1 Net income (above) Dividends paid Retained earnings, 12/31 (35,720) 319,500 41,920 (C) (767,000) (237,000) 80,000 (924,000) (319,500) (S) (161,000) 20,000 (460,500) (364,400) 35,720 (328,680) (808,920) (328,680) 80,000 (1,057,600) 16,000 (1) 4,000 253,500 577,000 Current assets Investment in Devine 323,500 552,000 (C) 41,920 335,600 258,320 10,500 7,100 (S) (A) (E) (E) 857,500 151,000 408,000 195,000 (A) (A) Buildings and equipment (net) Trademarks Goodwill Total assets 42,000 63,900 217,000 1,297,000 402,800 217,000 2,493,800 (A) 1,884,000 856,500

Liabilities Common stock Retained earnings, 12/31 (above) NCI in Devine, 1/1 (640,000) (320,000) (924,000) (296,000) (100,000) (S) (460,500) 100,000 (936,000) (320,000) (1,057,600) 83,900 (S) 64,580 (A) (148,480) (180,200) NCI in Devine, 12/31 Total liabilities and equities (180,200) (2,493,800) (1,884,000) (856,500) 817,920 817,920