On January 1, 2013, Jackie Corp. purchased 30% of the voting common stock of Rob Co., paying $2,000,000. Jackie properly accounts for this investment using the equity method. At the time of the investment, Rob's total stockholders' equity was $3,000,000. Jackie gathered the following information about Rob's assets and liabilities whose book values and fair values differed: $\begin{array}{lrr}&\text { Book Value }&\text { Fair Value }\
\text { Buildings (20-year life) } & \$ 1,000,000 & \$ 1,500,000 \
\text { Equipment (5-year life) } & 2,500,000 & 3,000,000 \
\text { Franchises (10-year life) } & 0 & 500,000
\end{array}$ Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Rob Co. reported net income of $300,000 for 2013, and paid dividends of $100,000 during that year. What is the amount of excess amortization expense for Jackie Corp's investment in Rob Co. for year 2013?

Question

Quizplus · Accepted Answer

The excess amortization expense is calculated based on the excess of fair value over book value for depreciable assets. For buildings, the excess is $500,000 with a 20-year life, resulting in $25,000 per year. For equipment, the excess is $500,000 with a 5-year life, resulting in $100,000 per year. For franchises, the excess is $500,000 with a 10-year life, resulting in $50,000 per year. Jackie owns 30%, so the total excess amortization is 30% of ($25,000 + $100,000 + $50,000) = $52,500, rounded to $55,000.

On January 1, 2013, Jackie Corp Any Excess of Cost Over Fair Value Was Attributed to Voting