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 $626,000 (Common Stock = $313,000; Additional Paid-In Capital = $93,900; Retained Earnings = $219,100). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $83,400.During the next three years, Taylor reports income and declares dividends as follows:YearNet IncomeDividends2016$73,100$10,500201794,50015,8002018105,30021,100Determine 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?The equity method.The partial equity method.The initial value method.F. As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $844,000 and Taylor has a similar account with a $316,500 balance. What is the consolidated balance for the Buildings account?G. What is the balance of consolidated goodwill as of December 31, 2018?H. 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 CompanyTaylor CompanyCommon stock$527,500$313,000Additional paid-in capital295,40093,900Retained earnings, 12/31/18654,100444,600d. 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?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?d. Investment Incomee. Investment BalanceThe equity methodThe partial equity methodThe initial value methodf. As of December 31, 2017, Miller’s Buildings account on its separate records has a balance of $844,000 and Taylor has a similar account with a $316,500 balance. What is the consolidated balance for the Buildings account?g. What is the balance of consolidated goodwill as of December 31, 2018?f.Consolidated balanceg.Consolidated balance H. 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 CompanyTaylor Company Common stock$527,500$313,000 Additional paid-in capital295,40093,900 Retained earnings, 12/31/18654,100444,600What will be the consolidated balance of each of these accounts?Common stockAdditional paid-in capitalRetained earnings, 12/31/18

Answer 1

Since there are multiple sub parts only the first 4 subparts are being anwred herewith i.e. A to D

Ans-(A)

Assuming that Taylor follows a Straight Line Method of Depreciation additional amount of depreciation to be reported would be :

83400 / 20 = 4170

Ans- (B)

Usiing the Full Goodwil Method

Goodwill =  Fair value of Taylor (A) - Fair value Net Assets (B)

(A) Fair Value of Taylor = $ 896000 *100% / 80% = $ 1120000

(B) Fair Value of Net assets = Common Stock + Paid In Capital + Retained Earnings + Revaluation Reserve

= $ 313000 + $ 93900 + $ 219100 + $ 83400 = $ 709400

GOODWILL = A - B = 1120000 - 709400 = $ 410600

Ans-(C )

Entry "S"

Common Stock ......DR 313000

Paid In Capital........DR 93900

Retained earnings ..DR 219100

Investment in Taylor..CR 500800

c............................CR 125200

Entry "A"

Buildings......DR 83400

Goodwill...DR 410600

Investment in Taylor...CR 395200

Investment in Taylor....CR 98800

Ans - (D)

Recordings of Investment Income in the books of Parent for 2016 - Equity Method

Dividends received -

Cash ..............DR 8400

Investments ....CR 8400

(80% of 10500 , parent dividend share)

Share of Income

Investment .........................DR 58480

Income from Investment.....CR 58480

(80% of 73100)

Recordings Investment Income in the books of Parent for 2016 - Partial Equity Method

Dividends received -

Cash ..............DR 8400

Investments ....CR 8400

(80% of 10500 , parent dividend share)

Recordings Investment Income in the books of Parent for 2016 - Initial Value Method

Dividends received -

Cash ..............DR 8400

Investments ....CR 8400

(80% of 10500 , parent dividend share)

Share of Income

Investment .........................DR 58480

Income from Investment.....CR 58480

Reversal of Amortization of expense share

Income from Investment.......DR 3336

Investment............................CR 3336

(83400/20*.8)