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: Year Net Income Dividends 2016 $ 73,100 $ 10,500 2017 94,500 15,800 2018 105,300 21,100 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 $844,000 and Taylor has a similar account with a $316,500 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 $ 527,500 $ 313,000 Additional paid-in capital 295,400 93,900 Retained earnings, 12/31/18 654,100 444,600 What will be the consolidated balance of each of these accounts? 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? Show less d. Investment Income e. Investment Balance 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? f. Consolidated balance g. Consolidated balance 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 $ 527,500 $ 313,000 Additional paid-in capital 295,400 93,900 Retained earnings, 12/31/18 654,100 444,600 What will be the consolidated balance of each of these accounts?

Show less Common stock Additional paid-in capital Retained earnings, 12/31/18

Answer 1

Part A

Excess depreciation expense

$4170

Fair Value Allocation and Excess Amortizations

Consideration transferred by Miller	896,000
Noncontrolling interest fair value	224,000
Taylor’s fair value	1,120,000
Taylor’s book value	626,000
Fair value in excess of book value	$494,000
Excess fair value assigned to specific accounts based on fair value		Remaining life	Annual excess amortizations
Excess fair value assigned to buildings	83,400	20	$4170
Goodwill	410600	Indefinite	0
Total	$494,000		$4170

Part B

Goodwill

$410600

Part C

No.	Account titles and explanation	Debit	Credit
Entry (S)	Common stock (Taylor)	313,000
	Additional paid-in capital (Taylor)	93,900
	Retained earnings (Taylor)	219,100
	Investment in Taylor Company (80%)		500,800
	Noncontrolling interest in Taylor (20%)		125,200
Entry (A)	Buildings	83,400
	Goodwill	410600
	Investment in Taylor Company (80%)		395200
	Noncontrolling interest in Taylor (20%)		98800

Part D

Equity method:
Income accrual (73,100*80%)	58480
Excess amortization expense (4170*80%)	3336
Investment income	$55144

Partial equity method:
Income accrual (73,100*80%)	$58480

Initial value method:
Dividends received (10,500*80%)	$8400