On January 1, 2017, Holland Corporation paid $9 per share to a group of Zeeland

Question

On January 1, 2017, Holland Corporation paid $9 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 $8.00 per share both before and after the acquisition by Holland. Zeeland's acquisition date balance sheet follows 15,700 329, 700 212, 100 557,500 Liabilities Common stock Retained earnings 237,500 100, 000 220, 000 Property and equipment (net 557,500 On January 1, 2017, Holland assessed the carrying amount of Zeeland's equipment (5-year remaining life) to be undervalued by $50,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining lfe) worth $420100. Zeeland's acquisition-date tair values for lits current assets and llab ties were equal to their carrying amounts. Any remaining excess of Zeeland's acquisition-date fair value over its book value was attributed to goodwlll The companies financial statements for the year ending December 31, 2018, follow Holland Zeeland Sales Cost of goods sold Depreciation expense (582,600) 295,400 73, 000 15,700 5, 800 44,994 (184,694 445,500 208, 500 32,300 19, 300 5,400 Anortization e Other operating expenses Equity in Zeeland earnings Separate company net income (127,000) Retained earnings 1/1 Net income Dividends declared (821,900) (184, 694) 50,000 (342,40O) (127, 00O) 30,000 Retained earnings 12/31 956,594 439,400) 126,700 609,228 854, 000 152,400 98 500 Current assets Investment in Zeeland Property and equipment (net 276, 000 168 500 Total assets $1,742,328 43,000 Liabilities Common stockHolland Common stock-Zeeland Retained earnings 12/31 (3, 600) (465,734) (320,000) (100, 00O) 439, 400 956,594 Total liabilitics and owners equity $ 1,742,328 (543,000) At year-end, there were no intra-entity recelvables or payables. a. Compute the amount of goodwill recognized in Holland's acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling Interest b. Show how Holland determined its December 31, 2018, Investment in Zeeland account balance C. Prepare a worksheet to determine the amounts that should appear on Holland's December 31, 2018, consolidated financial statements.

Explanation / Answer

a Consideration transferred by Holland ($9.00 x 60,000 shares) $ 540,000 Fair value of the non-controlling interest ($8.00 x 40,000 shares)      320,000 Total Zeeland fair value at January 1, 2017 $ 860,000 Zeeland book value at January 1, 2017      320,000 Excess acquisition-date fair over book value $ 540,000 To equipment (5-year remaining life) $    50,000 To patent (10-year remaining life)      420,100      470,100 Goodwill $    69,900 Goodwill allocation: Holland NCI Acquisition-date fair value $ 540,000 $ 320,000 Share (60% and 40%) of identifiable net assets*      474,060      316,040 Goodwill allocation $    65,940 $      3,960 *Zeeland identifiable net assets at acquisition-date fair value: Current assets $15,700 Property and equipment ($329,700 + $50,000)      379,700 Patents ($212,100 + $420,100)      632,200 Liabilities    (237,500) Total fair value of net identifiable assets $790,100 b Investment in Zeeland Initial value $540,000 Change in Zeeland’s RE × 60% ($439,400 – $220,000) × 60%      131,640 Excess amortization ($52,010 × 60% × 2 yrs.)      (62,412) Investment in Zeeland 12/31/18      609,228 HOLLAND CORPORATION AND ZEELAND CORPORATION Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Noncontrolling Consolidated Accounts Holland Zeeland Debit Credit Interest Totals Sales ($582,600) ($445,500) ($1,028,100) Cost of goods sold 295,400 208,500 $503,900 Depreciation expense 73,000 32,300 E 10000 115,300 Amortization expense 15,700 19,300 E 42010 77,010 Other operating expenses 58,800 58,400 117,200 Equity in Zeeland earnings -44,994 0 I 44994 0 Separate company net income ($184,694) ($127,000) Consolidated net income ($214,690) Noncontrolling interest in CNI            (29,996)           29,996 Controlling interest net income ($184,694) Retained earnings, 1/1/18 ($821,900) ($342,400) S 342400 ($821,900) Net income -184,694 -127,000 ($184,694) Dividends declared 50,000 30,000 D 18000 12000 50000 Retained earnings, 12/31 ($956,594) ($439,400) ($956,594) Current assets $126,700 $98,500 $225,200 Investment in Zeeland, Inc 609,228 0 D 18000 S 265,440 A1 250854 A2 65940 I 44994 Property and equipment (net) 854,000 276,000 A1 40000 E 10000 1,160,000 Patents 152,400 168,500 A1 378090 E 42010 656,980 Goodwill 0 0 69900 69,900 Total assets $1,742,328 $543,000 $2,112,080 Liabilities -465,734 -3,600 -469,334 Common stock -320,000 -100,000 S 100000 -320000 Noncontrolling interest S 176960 A1 167236 A2 3960 -348156 -366152 Retained earnings, 12/31 -956,594 -439,400 -956594 Total liabilities and equities ($1,742,328) ($543,000) $1,045,394 $1,045,394 ($2,112,080) Consolidated net income attributable to non-controlling interest: 2018 Zeeland net income $127,000 Less:excess depreciation -10,000 excess amortization -42,010 Adjusted net income $74,990 NCI percentage ownership 40% CNI attributable to NCI               29,996

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