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McGuire Company acquired 90 percent of Hogan
McGuire Company acquired 90 percent of Hogan... 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 $10,000 Fair Value $ 8,000 Buildings (10-year life) Equipment (4-year life) Land 14,000 5,000 18,000 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, 2019, what net adjustment is necessary for Hogan's Patent account?
$8,800. $7,000. $7,700. $5,600.
Expert Solution
| Common Stock | 80,000 |
| Retained Earnings | 160,000 |
| Land (12000-5000) | 7,000 |
| Equipment (18000-14000) | 4,000 |
| Building (8000-10000) | (2,000) |
| Total fair value of firm excluding patents | 249,000 |
| Less: Proportionate investment made including Non-controlling Interest (234,000/90%) | 260,000 |
| Thus Value of patents as on date of acquisition | 11,000 |
Patent have a life of 5 years. Thus amortisation per year is 11,000/5 = $ 2,200.
Hence adjustable value as on Dec 31= 11,000-2,200= $ 8,800
Hence Option A is correct.
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