Question

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $800,000 in cash to the owners of Taylor to acquire these shares. In addition, the remaining 20 percent of Taylor shares continued to trade at a total value of $200,000 both before and after Miller’s acquisition.

On January 1, 2016, Taylor reported a book value of $674,000 (Common Stock = $337,000; Additional Paid-In Capital = $101,100; Retained Earnings = $235,900). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $89,800.

During the next three years, Taylor reports income and declares dividends as follows:

Year	Net Income			Dividends
2016	$	79,000		$	11,500
2017		103,500			17,400
2018		115,900			23,300

Determine the appropriate answers for each of the following questions:

1. What amount of excess depreciation expense should be recognized in the consolidated financial statements for the initial years following this acquisition? Question: Amount of excess depreciation

2. If a consolidated balance sheet is prepared as of January 1, 2016, what amount of goodwill should be recognized? Question: Amount of goodwill

3. If a consolidation worksheet is prepared as of January 1, 2016, what Entry S and Entry A should be included?

4. On the separate financial records of the parent company, what amount of investment income would be reported for 2016 under each of the following accounting methods?

• The equity method.---
• The partial equity method.
• The initial value method.

5. On the parent company’s separate financial records, what would be the December 31, 2018, balance for the Investment in Taylor Company account under each of the following accounting methods?

• The equity method.
• The partial equity method.
• The initial value method.

6. As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $932,000 and Taylor has a similar account with a $349,500 balance. What is the consolidated balance for the Buildings account?

7. What is the balance of consolidated goodwill as of December 31, 2018?

8. Assume that the parent company has been applying the equity method to this investment. On December 31, 2018, the separate financial statements for the two companies present the following information:

	Miller Company				Taylor Company
Common stock	$	582,500			$	337,000
Additional paid-in capital		326,200				101,100
Retained earnings, 12/31/18		722,300				482,100

What will be the consolidated balance of each of these accounts?

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four parts of question should be ansered. Kindly take note of it.

Part A

Excess depreciation expense

$4490

Fair Value Allocation and Excess Amortizations

Consideration transferred by Miller	800000
Noncontrolling interest fair value	200000
Taylor’s fair value	1000000
Taylor’s book value	674000
Fair value in excess of book value	$326000
Excess fair value assigned to specific accounts based on fair value		Remaining life	Annual excess amortizations
Excess fair value assigned to buildings	89800	20	$4490
Goodwill	236200	Indefinite	0
Total	$326000		$4490

Part B

Goodwill

$236200

Part C

No.	Account titles and explanation	Debit	Credit
Entry (S)	Common stock (Taylor)	337000
	Additional paid-in capital (Taylor)	101100
	Retained earnings (Taylor)	235900
	Investment in Taylor Company (80%)		539200
	Noncontrolling interest in Taylor (20%)		134800
Entry (A)	Buildings	89800
	Goodwill	236200
	Investment in Taylor Company (80%)		260800
	Noncontrolling interest in Taylor (20%)		65200

Part D

Equity method:
Income accrual (79000*80%)	63200
Excess amortization expense (4490*80%)	3592
Investment income	$59608

Partial equity method:
Income accrual (79000*80%)	$63200

Initial value method:
Dividends received (11500*80%)	$9200