In: Accounting
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.
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. |