McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for $23
ID: 2444988 • Letter: M
Question
McGuire Company acquired 90 percent of Hogan Company on January 1, 2010, for $234,000 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 8,000
Equipments ( 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.
In consolidation at January 1, 2010, what adjustment is necessary for Hogan's Land account?
A.
$7,000 increase.
B.
$7,000 decrease.
C.
$6,300 increase.
D.
$6,300 decrease.
E.
No adjustment is necessary.
A.
$7,000 increase.
Explanation / Answer
Answer: Increase in value of land by $7,000 Current Market value 12000 Less: Book Value 5000 Increase in Book Value 7000