Question

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.

1. In consolidation at January 1, 2019, what adjustment is necessary for Hogan's Equipment account?

Multiple Choice

a. $4,000 increase.

b. $4,000 decrease.

c. $3,600 increase.

d. $3,600 decrease.

e. No adjustment is necessary.

2. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Equipment account?

Multiple Choice

$2,000 increase.

$2,000 decrease.

$1,800 increase.

$1,800 decrease.

No adjustment is necessary.

Homework Answers

Answer #1

Question 1
consolidation at January 1, 2019, what adjustment is necessary for Hogan's Equipment account?
Answer is Option (a) $4000 increase
In consolidation, equipment will be recorded at Fair value, then increase in equipment value is $18,000 - $14000 =$4000

Question 2
In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Equipment account?
Answer is Option (a) $2000 increase

Increase in equipment value as on 01-Jan 2019 =$4000
Less:depreciation for 2019 $4000/4 $1000
Less:depreciation for 2020 $4000/4 $1000
In consolidation adjustment to equipment at Dec 31,2020 =$4000 - $1000 - $1000 =$2000

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