QUESTION 35

1. Alpha owns 100% of the stock in Omega. On January 1, Year 1, Alpha owns a patent with a cost of $20 million, and accumulated amortization of $5 million. It has 10 more years of expected useful life. Alpha uses the equity method for accounting for investments.

   What would be the entries that Alpha would make in year 1 and 2 for this patent, if it continues to own it? Give two entries, one for each year.

2. Now assume that Alpha sold the patent to Omega in Year 1, for $18 million. Answer these three questions.

   What entry would Alpha make to record the sale of the patent?

3. Who would amortize the patent in Year 1, and what would be the amount of the amortization?

   What consolidation entry or entries, if any is needed in Year 1?