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:
Current assets$14,300 Liabilities$216,500 Property and equipment (net) 328,300 Common stock 100,000 Patents 193,900 Retained earnings 220,000 $536,500 $536,500
On January 1, 2017, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $58,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $300,600. Zeeland’s acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland’s acquisition-date fair value over its book value was attributed to goodwill.
The companies’ financial statements for the year ending December 31, 2018, follow:
Holland ZeelandSales$(675,600) $(431,500)Cost of goods sold 342,700 201,500 Depreciation expense 84,500 33,700 Amortization expense 14,300 20,700 Other operating expenses 53,200 62,600 Equity in Zeeland earnings (42,804) 0 Separate company net income$(223,704) $(113,000) Retained earnings 1/1$(820,500) $(304,600)Net income (223,704) (113,000)Dividends declared 50,000 30,000 Retained earnings 12/31$(994,204) $(387,600) Current assets$125,300 $84,500 Investment in Zeeland 590,568 0 Property and equipment (net) 840,000 262,000 Patents 149,600 150,500 Total assets$1,705,468 $497,000 Liabilities$(391,264) $(9,400)Common stock – Holland (320,000) 0 Common stock – Zeeland 0 (100,000)Retained earnings 12/31 (994,204) (387,600)Total liabilities and owners equity$(1,705,468) $(497,000)
At year-end, there were no intra-entity receivables or payables.
- Compute the amount of goodwill recognized in Holland’s acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling interest.
- Show how Holland determined its December 31, 2018, Investment in Zeeland account balance.
- Prepare a worksheet to determine the amounts that should appear on Holland’s December 31, 2018, consolidated financial statements.
