Reference no: EM133004302
Question - On January 1, 2020, 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 $7.50 per share both before and after the acquisition by Holland. Zeeland's acquisition date balance sheet follows:
Current assets $14,100 Common stock 100,000
Liabilities $213,500 Patents 191,300
Property and equipment (net) 308,100 Retained earnings 200,000
$513,500 $513,500
On January 1, 2020, Holland assessed the carrying amount of Zeeland's equipment (5-year remaining life) to be undervalued by $56,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $290,200. Zeeland's acquisition-date fair values for its current assets and liabilities were equal to their carrying amounts. Any remaining excess of Zeeland's acquisition-date fair value over its book value was attributed to goodwill.
The companies' financial statements for the year ending December 31, 2021, follow:
Holland Zeeland
Sales$ (652,200) $(429,500)
Cost of goods sold 330,900 200,500
Depreciation expense 81,500 33,900
Amortization expense 14,100 20,900
Other operating expenses 52,400 63,200
Equity in Zeeland earnings (42,468) 0
Separate company net income $(215,768) $(111,000)
Retained earnings 1/1 $(820,300) $(299,200)
Net income (215,768) (111,000)
Dividends declared 50,000 30,000
Retained earnings 12/31 $(986,068) $(380,200)
Current assets $125,100 $82,500
Investment in Zeeland 599,856 0
Property and equipment (net) 838,000 260,000
Patents 149,200 148,500
Total assets $1,712,156 $491,000
Liabilities $(406,088) $(10,800)
Common stock-Holland (320,000) 0
Common stock-Zeeland 0 (100,000)
Retained earnings 12/31 (986,068) (380,200)
Total liabilities and owners equity $(1,712,156) $(491,000)
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, 2021, Investment in Zeeland account balance.
-Worksheet to determine the amounts that should appear on Holland's December 31, 2021, consolidated financial statements.