Question

McGuire Company acquired 90 percent of Hogan Company on January 1, 20X1, for $243,000 cash. This amount is reflective of Hogan's total 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 $9,000 Equipment, 4-year life 14,000 18,000 Land 5,000 12,000 Any excess consideration transferred over fair value is attributable to an unrecorded patent with a useful life of 5 years. At what amount will the Patent be reported in the December 31, 20X1, balance sheet?

Answer 1

The patent is excess consideration transferred over fair value
Purchase consideration		$243,000
Net assets		Book Value	Fair Value	Increase (Decrease)
Buildings		10000	9000	-1000
Equipment		14000	18000	4000
Land		5000	12000	7000
		29000	39000	10000
Therefore, the net assets of the company would increase by 10,000
The current value of net assets (160,000+80,000)				$240,000
Increase in fair value				$10,000
Value of net assets				$250,000
% acquired				90%
Value of net assets acquired				$225,000
Purchase consideration				$243,000
Patent				$18,000
The patent to be reported in the December 31, 20X1 balance sheet would be $18,000