The Krause Corporation acquired 80 percent of the 100,000 outstanding voting shares of Leahy, Inc., for $6.30 per share on January 1, 2011. The remaining 20 percent of Leahy’s shares also traded actively at $6.30 per share before and after Krause’s acquisition. An appraisal made on that date determined that all book values appropriately reflected the fair values of Leahy’s underlying accounts except that a building with a 5-year life was undervalued by $45,000 and a 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 a retained earnings balance of $280,000. Following are the separate financial statements for the year ending December 31, 2012:

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, 1/1/12	$ (700,000)	$(350,000)
Net income (above)	(160,000)	(90,000)
Dividends paid	70,000	20,000
Retained earnings, 12/31/12	$ (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, 12/31/12 (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, 2012.

b. Prepare a 2012 consolidated income statement for Krause and Leahy.

c. If instead the noncontrolling interest shares of Leahy had traded for $4.85 surrounding Krause’s acquisition date, how would the consolidated statements change?

32. Father, Inc., buys 80 percent of the outstanding common stock of Sam Corporation on January 1, 2011, for $680,000 cash. At the acquisition date, Sam’s total fair value was assessed at $850,000 although Sam’s book value was only $600,000. Also, several individual items on Sam’s financial records had fair values that differed from their book values as follows:

Book Value	Fair Value
Land	$ 60,000	$ 225,000
Buildings and equipment (10-year remaining life)	275,000	250,000
Copyright (20-year life)	100,000	200,000
Notes payable (due in 8 years)	(130,000)	(120,000)

For internal reporting purposes, Father, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2011, for both companies. Using the acquisition method, determine consolidated balances for this business combination (through either individual computations or the use of a worksheet).

Father	Sam
Revenues	$(1,360,000)	$(540,000)
Cost of goods sold	700,000	385,000
Depreciation expense	260,000	10,000
Amortization expense	–0–	5,000
Interest expense	44,000	5,000
Equity in income of Sam	(105,000)	–0–
Net income	$ (461,000)	$(135,000)
Retained earnings, 1/1/11	$(1,265,000)	$(440,000)
Net income (above)	(461,000)	(135,000)
Dividends paid	260,000	65,000
Retained earnings, 12/31/11	$(1,466,000)	$(510,000)
Current assets	$ 965,000	$ 528,000
Investment in Sam	733,000	–0–
Land	292,000	60,000
Buildings and equipment (net)	877,000	265,000
Copyright	–0–	95,000
Total assets	$ 2,867,000	$ 948,000
Accounts payable	$ (191,000)	$(148,000)
Notes payable	(460,000)	(130,000)
Common stock	(300,000)	(100,000)
Additional paid-in capital	(450,000)	(60,000)
Retained earnings (above)	(1,466,000)	(510,000)
Total liabilities and equities	$(2,867,000)	$(948,000)