Question

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2019. Miller paid $872,000 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 $218,000 both before and after Miller's acquisition. On January 1, 2019, Taylor reported a book value of $490,000 (Common Stock = $245,000; Additional Paid-In Capital = $73,500; Retained Earnings = $171,500). Several of Taylor's buildings that had a remaining life of 20 years were undervalued by a total of $65,300. During the next three years, Taylor reports income and declares dividends as follows: Year 2019 2020 2021 Net Income $57,200 73,800 82,000 Dividends $ 8,200 12,300 16,400 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, 2019, what amount of goodwill should be recognized? c. If a consolidation worksheet is prepared as of January 1, 2019, 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 2019 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, 2021, 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. f. As of December 31, 2020, Miller's Buildings account on its separate records has a balance of $656,000 and Taylor has a similar account with a $246,000 balance. What is the consolidated balance for the Buildings account? g. What is the balance of consolidated goodwill as of December 31, 2021? h. Assume that the parent company has been applying the equity method to this investment. On December 31, 2021, the separate financial etatamante for the tun camnanine nracant the followine information:

Answer 1

$3265 $534700 0. Amount of Excess de preciation Amount of Goodwill b. Explanation L. Calculation of fair value in excess of book value : $ 872 000 72.000 Consideration transferred by Millen Add: Ne Î fair value $ 108 218000 $1090 000 lessi 1 $ 490000) Taylor's fair value Taylor's Boole value fair value in excess of book value $ 6000oo Life Annual Amortization Excess fair value assign to specific accounts Buildings 20 Years broodwill $534700 Indefinite $65300 $3265 $3265 2. Croodinoill to be recognised is $ 534700 Journal Entries Debit t Credit Dute , i joumal Entry for s Accounts Janusryol common stocle ( Taylor) 2019 Additional Paid in Capital Retained Earnings Investment in Taylor Company Non $245 000 $73500 $171500 $392000 $ 98000

il Journal Entry for A Date Accounts Credit January 1, Debit $6500 $ 534 700 Buildings Goodwill 2019 $480000 Investment in Taylor Companyl 801) Non Controlling Interes 141200ool denador Investment In lome (d) Investment Balance le) $ 1005044 $1012880 $ 872 000 The Equity Method The Partial Equity Method The Initial Value Method | $43148 |$45760 $6560 Explanation: (d) Investment Income 1) Equity Method Income acwools ( 80.1.) ($57200x80 •.) $ 45760 Excess amortization Expense (43265X80-1.) (#2612) Investment Income $43148 2) Pautial Equity method : Income Accurals (806) 1 $57200 x 80•lu) $ 45760 3) The instal value method : Dividend Received 180*15) ($8200*80:1) $6560

@) Investment Balance method Value paid $872000 Add: $170400 Equity Initial fair Inlome Accurals (2019+02091) [(#59200 + $ 73800 + $ 82000) X 80-1.] Dividends (2019 to 20211 [1$8200 + $12300 + $76400)x 8013] Excess Amortization 1 2018-2021) ( $32654 80%) 3 years 2021 Investment in Taylor ($29520) BLOG ($7836 ) in $100 50u4 $ 872000 i Partial Equity method Initial fair value peld Add: Income Accurals (2019 to 2021) [( $ 57200+ $ 73800+ $8200) X 8041.J Dividends (2018-2021) [ I lean mua $8200 + $12300 +$16400)x 80-9] Investment in Taylor 2021 $ 170400 lessi ($ 29520) $1012880 (IK Initial fair value method fair value paid $ 872000 F. Consolidaled balance Consolidated balance $960770 $ 534 700 9.1

income and amortization so that the parent balance is also IP) $656000 $ 246000 Explanation Millen book valeure-building Taylor book value-building Allocation less: Excess Amortization ( $3265X2) Consolidated building Account $65300 ($6530) $960770 (9) For Goodwill see (a). $534700 (b) $ 410000 Common stock Additional Peid in Capital Retained Earnings, 12731121 $229600 $508400 Explanation : If the Parent has been applying the Equity method, the stockholder equity accounts on its books will already represented consolidated bemal totals. The common stock and additional Paid in Lapitel figures to be reported are the parent balances contes only. As to retained earnings , the equity method will properly record all subsidary reflection of the Conso li dated to tel. Common stolle $410000 Additioned Poeid in Cepiteel $229600 Retained Faunings, 12131)21 $ 508400