Question

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2016. Miller paid $856,000 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 $214,000 both before and after Miller’s acquisition.

On January 1, 2016, Taylor reported a book value of $752,000 (Common Stock = $376,000; Additional Paid-In Capital = $112,800; Retained Earnings = $263,200). Several of Taylor’s buildings that had a remaining life of 20 years were undervalued by a total of $100,300.

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

Year	Net Income			Dividends
2016	$	87,800		$	12,500
2017		112,500			18,800
2018		125,300			25,100

Determine the appropriate answers for each of the following questions:

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

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

Answer 1

SOLUTION

Schedule 1 - Fair Value Allocation and Excess Amortizations

Particulars	Amount ($)
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
Excess fair value assigned to buildings	100,300
Goodwill	217,700

(A) Amount of excess depreciation = $100,300 / 20 years = $5,015

(B) Amount of goodwill to be recognized = $217,700 (Schedule 1 above)