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 Land account?
Multiple Choice
a. $7,000 increase.
b. $7,000 decrease.
c. $6,300 increase.
d. $6,300 decrease.
e. No adjustment is necessary.
2. In consolidation at December 31, 2019, what adjustment is necessary for Hogan's Land account?
Multiple Choice
a. $8,000 decrease.
b. $7,000 increase.
c. $6,300 increase.
d. $6,300 decrease.
e. No adjustment is necessary.
3. In consolidation at December 31, 2020, what adjustment is necessary for Hogan's Land account?
Multiple Choice
a. $7,000 decrease.
b. $7,000 increase.
c. $6,300 increase.
d. $6,300 decrease.
e. No adjustment is necessary.
1). In consolidation at January 1, 2019, increase of $7,000($12,000-$5,000) is necessary to be adjusted for Hogan's Land account
Therefore answer is (a.) $7,000 increase.
2)In consolidation at December 31, 2019, adjustment is necessary for increase of 7,000$ for Hogan's Land account
Therefore answer is option(b) $7,000 increase.
3) n consolidation at December 31, 2020, adjustment is necessary for $7,000 increase for Hogan's Land account
Therefore answer is option (b) $7,000 increase.
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