Question

In: Accounting

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.

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