Question

On January 1, 2020, 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	$	16,300		Liabilities	$	246,500
Property and equipment (net)		250,300		Common stock		100,000
Patents		219,900		Retained earnings		140,000
	$	486,500			$	486,500

On January 1, 2020, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $44,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $307,400. 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, 2021, follow:

	Holland				Zeeland
Sales	$	(512,400	)		$	(451,500	)
Cost of goods sold		260,000				211,500
Depreciation expense		64,000				31,700
Amortization expense		16,300				18,700
Other operating expenses		61,200				56,600
Equity in Zeeland earnings		(56,076	)			0
Separate company net income	$	(166,976	)		$	(133,000	)
Retained earnings 1/1	$	(822,500	)		$	(358,600	)
Net income		(166,976	)			(133,000	)
Dividends declared		50,000				30,000
Retained earnings 12/31	$	(939,476	)		$	(461,600	)
Current assets	$	127,300			$	104,500
Investment in Zeeland		625,512				0
Property and equipment (net)		860,000				282,000
Patents		153,600				179,500
Total assets	$	1,766,412			$	566,000
Liabilities	$	(506,936	)		$	(4,400	)
Common stock—Holland		(320,000	)			0
Common stock—Zeeland		0				(100,000	)
Retained earnings 12/31		(939,476	)			(461,600	)
Total liabilities and owners equity	$	(1,766,412	)		$	(566,000	)

At year-end, there were no intra-entity receivables or payables.

1. Compute the amount of goodwill recognized in Holland’s acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling interest.

2. Show how Holland determined its December 31, 2021, Investment in Zeeland account balance.

3. Prepare a worksheet to determine the amounts that should appear on Holland’s December 31, 2021, consolidated financial statements.

Amount a1. Goodwill Controlling Interest NCI 22. Goodwill allocation Amount b. Initial Value Change in Zeeland's RE Excess amortization Investment in Zeeland S

Answer 1

1 a) 2 Consideration transfereed by Holland ($8*60000) 3 Fair value of the non-controlling interest ($8*40000) 4 Total Zeeland fair value on Jan 1,2020 5 Zeeland book value at Jan 1, 2020 ($100000+ $140000) $ $ $ $ 480,000 320,000 800,000 (240,000) $ 560,000 8,800 $ $ $ 44,000 307,400 208,600 5 years 10 years Indefinite Total Annual amortization $ $ 30,740 $ $ 39,540 Excess on acquisition date fair value over book value 6 7 Equipment 8 Patent 9 Goodwill 10 11 12 Goodwill Allocation 13 Acquisition date fair value 14 Ishare of net Identifiable assets 15 Goodwill Allocation 16! 17 18 Zeeland Net identifiable net assets on acquisition date fair value: 19 Current assets 20 Property and equipemnt (250300+44000) 21 Patents (219900+307400) 22 Liabilities 23 Total fair value of Net identifiable assets $ $ $ Holland 560,000 $ 354,840 $ 205,160 $ NCI 240,000 236,560 3,440 $ $ $ $ $ 16,300 294,300 527,300 (246,500) 591,400

b) Investment in Zeeland Initial value Change in Zeeland's Retained earnings (461600-140000) *60% Excess amortization (39540*60%*2years) Investment in Zeeland $ $ $ 480,000 192,960 (47,448) 625,512 $ c) Consolidated net income attributable to non-controlling interest Zeeland net income Excess depreciation Excess amortizatiom Adjusted net income NCI percent Consolidated net income attributable to non-controlling interest $ $ $ 133,000 (8,800) (30,740) 93,460 0 37,384 $ $ $

Consoldation worksheet For the year ending December 31, 2021 Consolidation Holland Zeeland entries Assets Non- controlling Consolidated Totals $ (512,400) $ 260,000 $ 64,000 $ 16,300 $ 61,200 $ (56,076) $ (166,976) $ $ $ $ $ $ $ (451,500) 211,500 31,700$ 18,700$ 56,600 $ (133,000) $ 8,800 30,740 $ $ $ $ $ (963,900) 471,500 104,500 65,740 117,800 56,076 95,616 Income Statement : Sales Cost of goods sold Depreciation expense Amortization expense Other opertaing expenses Equity in Zeeland earnings Separate company Net Income Consolidated net income NCI in CNI Controlling interest in net income Statement of Retained Earnings: Retained earnings Net Income Dividends declared Retained earnings $ $ (37,384) $ $ (204,360) 37,384 (166,976) $ $ $ $ (822,500) $ (166,976) $ 50,000 $ (939,476) $ (358,600) $ (133,000) $ 30,000 (461,600) $ 358,600 133,000 $ 491,600 $ $ $ 12,000 $ 12,000 $ (822,500) (166,976) 50,000 (879,476) 18,000 $ 18,000 $