Question

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $784,000 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 $196,000 both before and after Miller's acquisition. On January 1, 2016, Taylor reported a book value of $768,000 (Common Stock = $384,000; Additional Paid-In Capital = $115,200; Retained Earnings = $268,800). Several of Taylor's buildings that had a remaining life of 20 years were undervalued by a total of $102,500. During the next three years, Taylor reports income and declares dividends as follows: Year 2016 2017 2018 Net Income $ 90,200 117,900 131,300 Dividends $ 13,100 19,700 26,300 Determine the appropriate answers for each of the following questions: a. What amount of excess depreciation expense should be recognized in the consolidated financial statements for the initial years following this acquisition? b. If a consolidated balance sheet is prepared as of January 1, 2016, what amount of goodwill should be recognized? c. If a consolidation worksheet is prepared as of January 1, 2016, what Entry S and Entry A should be included? d. 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. e. 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?

Answer 1

(a)

Schedule-1 Fair value allocation and Excess Amortizations
Consideration tranferred by Miller	$784,000
Noncontrolling interest fair value	$196,000
Taylor's fair value	$980,000
Less: Taylor's book value	($768,000)
Fair value in excess of book value	$212,000

	Excess fair value assigned to specific accounts based on fair value	Remaining life	Annual excess amortization
Excess fair value assigned to buildings	$102,500	20 years	$5,125
Goodwill ($212000-$102500)	$109,500	indefinite	$0
Total			$5,125

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(b)

Amount of goodwill = $109500

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(c)

Entry S

Account Title	Debit	Credit
Common stock (Taylor)	$384,000
Additional paid-in capital (Taylor)	$115,200
Retained earnings (Taylor)	$268,800
Investment in Taylor company (80%)		$614,400
Noncontrolling interest in Taylor (20%)		$153,600

Entry A

Account Title	Debit	Credit
Buildings	$102,500
Goodwill	$109,500
Investment in Taylor company (80%)		$169,600
Noncontrolling interest in Taylor (20%)		$42,500