Question

17. kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for...

17. kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess over fair value was attributed to an unrecorded patent with a remaining life of five years. The functional currency of Hastie is the Canadian dollar.

For the year ended December 31, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65.

Kennedy's share of Hastie's net income for 2021 would be

Multiple Choice

  • $18,000.

  • $15,000.

  • $18,200.

  • $16,000.

  • $18,500.

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Answer #1

Solution-

Kennedy's share of Hastie's net income for 2021 = [Translated net income - Translated amortization]

= [$25000 - $6800]

= $18200

Workings-

Computation of translated amortization-

1st step-

Patent value = [$350000 - (CAD 450000 * $0.70)]

= [$350000 - $315000]

= $35000

2ns step-

Translated amortization = [{($35000/$0.70) /5years} * $0.68]

= [(CAD 50000 / 5years) * $0.68]

= [CAD 10000 * $0.68]

= $6800

Note- CAD = Canadian dollar

Ans :- Therefore, Kennedy's share of Hastie's net income for 2021 would be $18200 .

So, correct option is $18200 .

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