question archive 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

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

Subject:AccountingPrice:5.87 Bought7

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 $8.00 per share both before and after the acquisition by Holland. Zeeland’s acquisition date balance sheet follows:

               
Current assets $ 15,600   Liabilities $ 236,000  
Property and equipment (net)   329,600   Common stock   100,000  
Patents   210,800   Retained earnings   220,000  
  $ 556,000     $ 556,000  
 

On January 1, 2020, Holland assessed the carrying amount of Zeeland’s equipment (5-year remaining life) to be undervalued by $51,000. Holland also determined that Zeeland possessed unrecorded patents (10-year remaining life) worth $419,900. 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:

Sales $ (594,300 )   $ (444,500 )
Cost of goods sold   301,300       208,000  
Depreciation expense   74,500       32,400  
Amortization expense   15,600       19,400  
Other operating expenses   58,400       58,700  
Equity in Zeeland earnings   (44,286 )     0  
Separate company net income $ (188,786 )   $ (126,000 )
Retained earnings 1/1 $ (821,800 )   $ (339,700 )
Net income   (188,786 )     (126,000 )
Dividends declared   50,000       30,000  
Retained earnings 12/31 $ (960,586 )   $ (435,700 )
             
Current assets $ 126,600     $ 97,500  
Investment in Zeeland   606,792       0  
Property and equipment (net)   853,000       275,000  
Patents   152,200       167,500  
Total assets $ 1,738,592     $ 540,000  
             
Liabilities $ (458,006 )   $ (4,300 )
Common stock—Holland   (320,000 )     0  
Common stock—Zeeland   0       (100,000 )
Retained earnings 12/31   (960,586 )     (435,700 )
Total liabilities and owners equity $ (1,738,592 )   $ (540,000 )

At year-end, there were no intra-entity receivables or payables.

  1. Compute the amount of goodwill recognized in Holland’s acquisition of Zeeland and the allocation of goodwill to the controlling and noncontrolling interest.

  2. Show how Holland determined its December 31, 2021, Investment in Zeeland account balance.

  3. Prepare a worksheet to determine the amounts that should appear on Holland’s December 31, 2021, consolidated financial statements.

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