Question

Any excess of cost over fair value was attirbuted to goodwill, which has not been impaired. Emery Co. reported net income of $400,000 for 2013, and paid dividends of $200,000 during that year.What is the amount of excess amortization expense for Bailey's investment in Emery for the first year?

Answer 1

Answer:

$84,000

Explanation:

Building

Book value = 1,000,000

Fair value = 1,800,000

Excess amortization = 1,800,000 - 1,000,000 = 800,000

Excess amortization = 800,000 / 20 = 40,000 per year

Equip

Book value = 1,500,000

Fair value = 2,000,000

Excess amortization = 2,000,000 - 1,500,000 = 500,000

Excess amortization = 500,000 / 5 = 100,000 per year

Franchises

Book value = 0

Fair value = 700,000

Excess amortization = 0 - 700,000 = 700,000

Excess amortization = 700,000 / 10 = 70,000 per year

Total Excess Amortization per year = 40,000 + 100,000 + 70,000

Total Excess Amortization per year = 210,000

Bailey corp has 40% shareholding of Emery Co. so it will be divided accordingly

Share of Bailey Corp. = 210,000 x 40% = 84,000

* Original question is also attached as a picture with this answer please find it.