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Problem - The Holtz Corporation acquired 80 percent of the 100,000 outstanding voting shares of Devine, Inc., for $7.20 per share on January 1, 2014. The remaining 20 percent of Devine's shares also traded actively at $7.20 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 $75,500 and a fully amortized trademark with an estimated 10-year remaining life had a $63,000 fair value. At the acquisition date, Devine reported common stock of $100,000 and a retained earnings balance of $314,500.
Following are the separate financial statements for the year ending December 31, 2015:
Holtz Corporation
Devine, Inc.
Sales
$(742,000)
$(275,750)
Cost of goods sold
208,000
110,000
Operating expenses
342,000
69,750
Dividend income
(16,000)
0
Net income
$(208,0000
$(96,0000
Retained earnings, 1/1/15
$(764,000)
$(384,500)
Net income (above)
(208,000)
(96,000)
Dividends declared
60,000
20,000
Retained earnings, 12/31/15
$(912,000)
$(460,500)
Current assets
$198,500
$144,500
Investment in Devine, Inc
576,000
Buildings and equipment (net)
862,500
409,000
Trademarks
219,000
Total assets
$1,747,000
$772,500
Liabilities
$(515,000)
(212,000
Common stock
(320,000)
(100,000
Retained earnings, 12/31/15 (above)
(912,000)
(460,500
Total liabilities and equities
$(1,747,000)
(772,500
At year-end, there were no intra-entity receivables or payables.
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