The Krause Corporation acquired 80 percent of the 100,000 outstanding voting shares ofLeahy, Inc., for $6.30 per share on January 1, 2012. The remaining 20 percent of Leahy's sharesalso traded actively at $6.30 per share before and after Krause's acquisition. An appraisal madeon that date determined that all book values appropriately reflected the fair values of Leahy'sunderlying accounts except that a building with a 5-year life was undervalued by $45,000 anda fully amortized trademark with an estimated 10-year remaining life had a $60,000 fair value
At the acquisition date, Leahy reported common stock of $100,000 and retained earningsbalance of $280,000.
Following are the separate financial statements for the year ending December 31, 2013:
Krause
Corporation Leahy, Inc.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $ (584,000) $(250,000)
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . 194,000 95,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . 246,000 65,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . (16,000) -0-
Net income . . . . . . . . . . . . . . . . . . . . . .. . . . $ (160,000) $ (90,000)
Retained earnings, 1/1/13 . . . . . . . . . . . .. . . $ (700,000) $(350,000)
Net income (above) . . . . . . . . . . . . . . . . . .. . . (160,000) (90,000)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 20,000
Retained earnings, 12/31/13 . . . . . . . . . . . . . $ (790,000) $(420,000)
Current assets . . . . . . . . . . . . . . . . . . . . . . . . $ 296,000 $ 191,000
Investment in Leahy, Inc. . . . . . . . . . . . . . . . . 504,000 -0-
Buildings and equipment (net) . . . . . . . . . . .. . 680,000 390,000
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 144,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,580,000 $ 725,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . $ (470,000) $(205,000)
Common stock . . . . . . . . . . . . . . . . . . . . . . . (320,000) (100,000)
Retained earnings, 12/31/13 (above) . . . . .. . (790,000) (420,000)
Total liabilities and equities . . . . . . . . . . . $(1,580,000) $(725,000)
a. Prepare a worksheet to consolidate these two companies as of December 31, 2013.
b. Prepare a 2013 consolidated income statement for Krause and Leahy.
c. If instead the non-controlling interest shares of Leahy had traded for $4.85 surrounding
Krause's acquisition date, how would the consolidated statements change?