This is for $7.70 per share... not $7.20 Thank you.. The Holtz Corporation acqui
ID: 2414305 • Letter: T
Question
This is for $7.70 per share... not $7.20Thank you.. The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.70 per share on January 1, 2014. The remaining 20 percent of Devine's shares also traded actively at $7.70 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 life was undervalued by remaining life had a $75,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $290,000 $81,000 and a fully amortized trademark with an estimated 10-year Following are the separate financial statements for the year ending December 31, 2015 HoltzDevine Corporation Inc. $ (760,000) $(365,250) Sales Cost of goods sold Operating expenses Dividend income 234,000 133,000 319,000 107,250 (16,000) Net income $ (223,000) $(125,000) Retained eamings, 1/1/15 Net income (above) Dividends declared $ (709,000) $(360,000) (223,000) (125,000) 90,00020,000 Retained earnings, 12/31/15 S (842,000) $(465,000) Current assets Investment in Devine, Inc Buildings and equipment (net) Trademarks s 166,000 $ 199,000 616,000 905,000389,000 160,000226,000 Total assets $1,847,000 $ 814,000 s (685,000 $249.000) Liabilities Common stock Retained eamings, 12/31/15 (above) (320,000) (100,000) (842,000) (465,000) Total liabilities and equities $(1,847,000) $(814,000) At year-end, there were no intra-entity receivables or payables
Explanation / Answer
SOLUTION:
a) Consolidation Worksheet:
HOLTZ CORPORATION AND DEVINE INC
Consolidated Worksheet for the Year Ending December 31, 2015
Consolidated Entries
Holtz Corporation
Devine Inc.
Debit
Credit
NCI
Consolidated
Sales
-760000
-365250
-1125250
Cost of Goods Sold
234000
133000
367000
Operating Expense
319000
107250
23700
449950
Dividend Income
-16000
16000
0
Net Income
-223000
-125000
Consolidated Net Income
-308300
NCI in Consolidated Net Income
-20260
20260
Holtz's Interest in Consolidated Income
-288040
Retained Earnings on 1/1
-709000
-360000
360000
37040
-746040
Net Income (Consolidated Above)
-223000
-125000
-288040
Dividend Declared
90000
20000
16000
4000
70000
Retained earnings on 12/31
-842000
-465000
-964080
Current Assets
166000
199000
365000
Investment in Devine
616000
37040
653040
0
Building and Equipment
905000
389000
64800
16200
1342600
Trademarks
160000
226000
67500
7500
446000
Goodwill
0
0
224000
224000
Total Assets
1847000
814000
2377600
Liabilities
-685000
-249000
-934000
Common Stock
-320000
-100000
100000
-320000
Retained earnings (Consolidated Above)
-842000
-465000
-964080
NCI in Devine on 1/1
78000
71260
-149260
NCI in Devine on 12/31
-165520
-165520
Total Liabilities and Equities
-1847000
-814000
-2383600
Working Notes:
1. Calculation of Goodwill or Gain on Bargain purchase
Total
Holtz
NCI
Fair Value of Consideration
770000
616000
154000
Less: Book Value of Net Assets Acquired
390000
312000
78000
Excess of Fair Valoe over BV of Net Assets
380000
304000
76000
Less: Differential Identified:
- Building
81000
64800
16200
- Trademark
75000
60000
15000
Goodwill (Gain on Bargain Purchase
224000
179200
44800
2. Calculation of Excess Amortization Expense due revalued assets
Building = 81000 / 5 = 16200
Patents = 75000 / 10 = 7500
Total New Operating expense to be debited while consolidation = 23,700
3. Calculation of NCI in Consolidated income
Net Income of Divine Inc.= 125,000
Less: New operating expense = 23,700
Net Income (Revised)= 101,300
NCI = 101,300 * 20% = 20,260
4. Adjustment to Retained Earnings
Change in Divine Inc.’s Retained Earnings from 1/14 to 1/15
(360000 – 290000) = 70,000
Less: Excess Amortization for the year 2014 ………………………..= 23700
Adjusted Subsidiary RE Increase ………………………………………= 46,300
Share of Holtz (80%)………………. = 37,040
5. Adjustment Entry for Building:
Addition fair value of Building on 1/14 = 81000
Less: Amortization for 2014 (81000/5) = 16200
6. NCI's Beginning and Ending Balnce:
Beginning Balance is equal to 20% of the book value of net assts of the Divin Inc. on acquisition date $ 78,000 { (100,000 + 290,000) * 20%}
Increase is equal to the 20% of Excess Fair value on net assets on acquisation date minus one year amortization expense $ 71,260 { (380,000 - 23,700) * 20%)
HOLTZ CORPORATION AND DEVINE INC
Consolidated Worksheet for the Year Ending December 31, 2015
Consolidated Entries
Holtz Corporation
Devine Inc.
Debit
Credit
NCI
Consolidated
Sales
-760000
-365250
-1125250
Cost of Goods Sold
234000
133000
367000
Operating Expense
319000
107250
23700
449950
Dividend Income
-16000
16000
0
Net Income
-223000
-125000
Consolidated Net Income
-308300
NCI in Consolidated Net Income
-20260
20260
Holtz's Interest in Consolidated Income
-288040
Retained Earnings on 1/1
-709000
-360000
360000
37040
-746040
Net Income (Consolidated Above)
-223000
-125000
-288040
Dividend Declared
90000
20000
16000
4000
70000
Retained earnings on 12/31
-842000
-465000
-964080
Current Assets
166000
199000
365000
Investment in Devine
616000
37040
653040
0
Building and Equipment
905000
389000
64800
16200
1342600
Trademarks
160000
226000
67500
7500
446000
Goodwill
0
0
224000
224000
Total Assets
1847000
814000
2377600
Liabilities
-685000
-249000
-934000
Common Stock
-320000
-100000
100000
-320000
Retained earnings (Consolidated Above)
-842000
-465000
-964080
NCI in Devine on 1/1
78000
71260
-149260
NCI in Devine on 12/31
-165520
-165520
Total Liabilities and Equities
-1847000
-814000
-2383600
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