McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This...

McGuire Company acquired 90 percent of Hogan Company on January 1, 2019, for $234,000 cash. This amount is reflective of Hogan’s total acquisition-date fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following:

	Book Value		Fair Value
Buildings (10-year life)	$	10,000	$	8,000
Equipment (4-year life)		14,000		18,000
Land		5,000		12,000

Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years.

In consolidation at December 31, 2020, what net adjustment is necessary for Hogan's Patent account?

Multiple Choice

$4,200.
$5,500.
$8,000.
$6,600.

Solutions

Expert Solution

		Amount $
Purchase Consideration		234,000
Add: Non-Controlling Interest		26,000	=234000/90*10
Less: Net Assets
Common Stock	160,000
Retained earnings	80,000
Difference in value of building	-2,000
Difference in value of Equipment	4,000
Difference in value of Land	7,000
		2,49,000
Amount attributable to Unamortized patent		11,000

Amortization of patent for year 2019 & 2020	4,400	=11000/5*2

Net adjustment is necessary for Hogan's Patent account	$ 6,600	=11000-4400

Correct answer is option 4.

ekkarill92 answered 1 year ago

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