Question

37 On January 2, 2021, Barley Corp. purchased 40% of the voting common stock of Wheat Co., paying $3,000,000. Barley properly accounts for this investment using the equity method. At the time of the investment, Wheat's total stockholders' equity was $5,000,000. Barley gathered the following information about Wheat's assets and liabilities whose book values and fair values differed: Book Value Fair Value Buildings (20-year life) $1,000,000 $1,800,000 Equipment (5-year life) 1,500,000 2,000,000 Franchises (10-year life) 0 700,000 Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Wheat Co. reported net income of $400,000 for 2021, and paid dividends of $200,000 during that year. What is the amount of excess amortization expense for Barley's investment in Wheat for the first year? Fint Tim e e

Answer 1

Calaculation of amount of excess amortization expense for Barley's investment in wheat for the first year:

Assets	Fair value of assets	Book value of assets	Excess of fair value over book value	life of the asset	Excess Amortization
Building	$1800000	$1000000	$800000	20yrs	$40000
Equipment	$2000000	$1500000	$500000	5yrs	$100000
Franchises	$700000	$0	$700000	10yrs	$70000
Total					$210000

It was given that barley corp. holds 40% investment in common stock in wheat Co.

Therefore,

Amount of excess Amortization expense for barley's investment in wheat co.

= Total excess Amortization of assets × holding share in wheat co.

= $210000 × 40%

= $84000

______×_______

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