Miller and Taylor Companies Consolidation Goodwill

Problem 27

Miller Company acquired an 80 percent interest in Taylor Company on January 1, 2009, Miller paid
$664,000 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 valueof $166,000 both before and after Miller's acquisition.
On January 1, 2009, Taylor reported a book value of $600,000 (Common Stock = $300,000;
Additional paid in capital = $90,000; Retained Earnings = $210,000). Several of Taylor's buildings
that had a remaining life of 20 years were undervalued by a total of $80,000.
During the next three years, Taylor reported the following figures:

Year Net Income Dividends Paid
2009 $70,000 $10,000
2010 90,000 15,000
2011 100,000 20,000

Determine 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 the acquisition?

b. If the consoliodated balance sheet is prepared as of January 1, 2009, what amount of
goodwill should be recognized?

c. If a consolidated worksheet is prepared as of January 1, 2009, 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 2009 under each of the following accounting methods?
1. The equity method
2. The partial equity method
3. The initial value method

e. On the parent company's separate financial records, what would be the December 31, 2011, balance for
the Investment in Taylor's Company account under each of the following accounting methods"
4. The equity method
5. The partial equity method
6. The initial value method

f. As of December 31, 2010, Miller's Buildings account on it separate records has a balance of
$800,000 and Taylor has a similar account with a $300,000 balance. What is the consolidated
balance for the Buildings account?

g. What is the balance of consolidated goodwill as of December 31, 2011?

h. Assume that the parent company has been applying the equity method to this investment. On
December 31, 2011, the separate financial statements for the two companies present the
following information:
Miller Taylor
Company Company
Common stock $500,000 $300,000
Additional paid in capital 280,000 90,000
Retained earnings, 12/31/11 620,000 425,000

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