Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2019. Miller paid $784,000 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 $196,000 both before and after Miller’s acquisition. On January 1, 2019, Taylor reported a book value of $768,000 (Common Stock = $384,000; Additional Paid-In Capital = $115,200; Retained Earnings = $268,800). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $102,500. During the next three years, Taylor reports income and declares dividends as follows: Year Net Income Dividends 2019 $ 90,200 $ 13,100 2020 117,900 19,700 2021 131,300 26,300 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, 2019, what amount of goodwill should be recognized? If a consolidation worksheet is prepared as of January 1, 2019, what Entry S and Entry A should be included?
Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2019. Miller paid $784,000 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 $196,000 both before and after Miller’s acquisition.
On January 1, 2019, Taylor reported a book value of $768,000 (Common Stock = $384,000; Additional Paid-In Capital = $115,200;
During the next three years, Taylor reports income and declares dividends as follows:
| Year | Net Income | Dividends | ||||
| 2019 | $ | 90,200 | $ | 13,100 | ||
| 2020 | 117,900 | 19,700 | ||||
| 2021 | 131,300 | 26,300 | ||||
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, 2019, what amount of
goodwill should be recognized? -
If a consolidation worksheet is prepared as of January 1, 2019, 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 2019 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, 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.
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As of December 31, 2020, Miller’s Buildings account on its separate records has a balance of $1,052,000 and Taylor has a similar account with a $394,500 balance. What is the consolidated balance for the Buildings account?
-
What is the balance of consolidated goodwill as of December 31, 2021?
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Assume that the parent company has been applying the equity method to this investment. On December 31, 2021, the separate financial statements for the two companies present the following information:
| Miller Company | Taylor Company | ||||||
| Common stock | $ | 657,500 | $ | 384,000 | |||
| Additional paid-in capital | 368,200 | 115,200 | |||||
| Retained earnings, 12/31/21 | 815,300 | 549,100 | |||||
What will be the consolidated balance of each of these accounts?
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