Question

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $896,000 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 $224,000 both before and after Miller’s acquisition.

On January 1, 2016, Taylor reported a book value of $406,000 (Common Stock = $203,000; Additional Paid-In Capital = $60,900; Retained Earnings = $142,100). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $54,200.

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

Year	Net Income			Dividends
2016	$	47,700		$	6,900
2017		62,100			10,400
2018		69,300			13,900

Determine the appropriate answers for each of the following questions:

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

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

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

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.

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.

As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $556,000 and Taylor has a similar account with a $208,500 balance. What is the consolidated balance for the Buildings account?

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

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	$	347,500			$	203,000
Additional paid-in capital		194,600				60,900
Retained earnings, 12/31/18		430,900				290,000

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

Answer 1

Schedule 1—Fair Value Allocation and Excess Amortizations

                  Consideration transferred by Miller .......... $856,000

                  Noncontrolling interest fair value...............     214,000

                  Taylor’s fair value........................................... $1,070,000

                  Taylor’s book value........................................ (752,000)

                  Fair value in excess of book value ............     318,000               Annual Excess

                                                                                                                        Life     Amortizations

                  Excess fair value assigned to buildings       100,300                                                                                    20 years                                                        $5,015

                  Goodwill ........................................................... $217,700   indefinite             -0-

                        Total.............................................................                                             $5,015

   Using the acquisition method, the allocation will be the total difference ($100,300) between the buildings' book value and fair value. Based on a 20 year life, annual excess amortization is $5,015.

      Miller book value—buildings .................................. $1,004,000

      Taylor book value—buildings ................................        376,500

      Allocation .....................................................................        100,300

      Excess amortizations for 2016–2017 ($5,015 × 2)      (10,030)

                  Consolidated buildings account ............... $1,470,770

.   Acquisition-date fair value allocated to goodwill

            (see schedule 1 above) ......................................     $217,700