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
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 |
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.
In consolidation at December 31, 2010, what adjustment is necessary for Hogan's Equipment account?
a) $3,000 increase
b) $3,000 decrease
c) $2,700 increase
d) $2,700 decrease
e) No adjustment necessary
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