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.
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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