On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporatio
ID: 2487989 • Letter: O
Question
On January 1, 20X6, Climber Corporation acquired 90 percent of Wisden Corporation for $180,000 cash. Wisden reported net income of $30,000 and dividends of $10,000 for 20X6, 20X7, and 20X8. On January 1, 20X6, Wisden reported common stock outstanding of $100,000 and retained earnings of $60,000, and the fair value of the noncontrolling interest was $20,000. It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination. The remainder of the differential at acquisition was attributable to an increase in the value of patents, which had a remaining useful life of five years. All depreciable assets held by Wisden at the date of acquisition had a remaining economic life of five years. Climber uses the equity method in accounting for its investment in Wisden.
8.
Required information
Based on the preceding information, the increase in the fair value of patents held by Wisden is:
$20,000
$25,000
$15,000
$5,000
Please show your work, thank you!
Explanation / Answer
Answer 8. $25000 Common Stock 100000 Retained earnings 60000 Total Equity 160000 Less: Assets Land 30000 equipment 50000 80000 Book Value of Patent 80000 Fair Value of Patent Value of Non Controlling Interest 20000 Total market Value of Equity (20000/ 10%) 200000 Less: Market Value of Assets Land 35000 Equipment 60000 95000 Market Value of Patent 105000 Net Incraese In Fair Value of Patent (105000 - 80000) 25000