Chapter 4, Problem 32P

a.

To determine

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

Explanation of Solution

Computation of amount of excess depreciation expense which should be recognized in the consolidated financial statements for the initial years following this acquisition:

Particulars	Amount
Consideration transferred	$         664,000
Fair value of Non-controlling interest	$         166,000
Fair value of Company T	$         830,000
Book value of Company T	$       (600,000)
Excess of fair value over book value	$         230,000
Excess fair value allocated to:		Remaining life	Annual amortization
Building	$           80,000	20 years	$          4,000
Goodwill	$         150,000	Indefinite	$                  -
Total			$          4,000

Table: (1)

b.

To determine

Find the amount of goodwill which should be recognized if a consolidated balance sheet is prepared as of January 1, 2013.

Explanation of Solution

Computation of amount of goodwill which should be recognized if a consolidated balance sheet is prepared as of January 1, 2013:

The amount of goodwill which should be recognized if a consolidated balance sheet is prepared as of January 1, 2013 is $150,000 which has been calculated by deducting the allocation of building from excess fair value.

c.

To determine

Identify Entry S and Entry A which should be included if a consolidation worksheet is prepared as of January 1, 2013.

Explanation of Solution

Entry S and Entry A which should be included if a consolidation worksheet is prepared as of January 1, 2013:

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Common stock of Company T		$        300,000
	Additional paid-in capital of Company T		$          90,000
	Retained earnings		$        210,000
	Investment in Company T			$      480,000
	Non-controlling interest in Company T			$      120,000
	(being entry S recorded)

Table: (2)

Date	Accounts Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Building		$          80,000
	Goodwill		$        150,000
	Investment in Company T			$      184,000
	Non-controlling interest in Company T			$        46,000
	(being Entry A recorded)

Table: (3)

d.

To determine

Determine the amount of investment income which would be reported for 2013 under each of the following accounting methods:

• The equity method
• The partial equity method
• The initial value method

Explanation of Solution

The amount of investment income which would be reported for 2013 under each of the accounting methods:

Particulars	Amount
Equity method:
Income accrual	$ 56,000
Excess amortization expense	$  (3,200)
Income from investment	$ 52,800
Partial Equity method:
Income accrual	$ 56,000
Initial value method:
Dividends received (80%)	$   8,000

Table: (4)

e.

To determine

Identify what would be the December 31, 2015, balance for the Investment in Company T Company account under each of the following accounting methods:

• The equity method
• The partial equity method
• The initial value method

Explanation of Solution

Balance for the Investment in Company T Company account under each of the following accounting methods:

Equity method:

Particulars	Amount
Initial fair value	$ 664,000
Income accrual	$ 208,000
Dividends paid	$ (36,000)
Excess amortization	$   (9,600)
Investment in Company T on 12/31/2015	$ 826,400

Table: (5)

The partial equity method:

Particulars	Amount
Initial fair value	$ 664,000
Income accrual	$ 208,000
Dividends paid	$ (36,000)
Investment in Company T on 12/31/2015	$ 836,000

Table: (6)

The initial value method:

Particulars	Amount
Investment in Company T on 12/31/2015	$ 664,000

Table: (7)

f.

To determine

Find the consolidated balance for the Buildings account.

Explanation of Solution

Computation of consolidated balance for the Buildings account:

Particulars	Amount
Book value of building of Company M	$    800,000
Book value of building of Company T	$    300,000
Fair value allocation	$      80,000
Excess amortization	$      (8,000)
Consolidated building account	$ 1,172,000

Table: (8)

g.

To determine

Determine balance of consolidated goodwill as of December 31, 2015.

Explanation of Solution

Computation of balance of consolidated goodwill as of December 31, 2015:

The amount of goodwill which should be recognized if a consolidated balance sheet is prepared as of December 31, 2015 is $150,000 which has been calculated by deducting the allocation of building from excess fair value.

h.

To determine

Determine the consolidated balance of each of these accounts.

Explanation of Solution

If the company uses the equity method then the consolidated totals will not need to be derived. The balance of common stock and additional paid-in capital of only parent company will be included in the consolidated financial statements.