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, 2011, what adjustment is necessary for Hogan's Equipment account?

A) $1,800 increase
B) No adjustment is necessary
C) $2,000 increase
D) $1,800 decrease
E) $2,000 decrease

Respuesta :

Answer:

Option (C) is correct.

Explanation:

Increase in equipment value as on 01-Jan 2019:

= Market value - Book value

= $18,000 - $14,000

= $4000

Depreciation for 2019:

= $4000 ÷ 4

= $1000

Depreciation for 2020:

= $4000 ÷ 4

= $1000

In consolidation adjustment to equipment at Dec 31,2020:

= Increase in equipment value - Depreciation for 2019 - Depreciation for 2020

= $4000 - $1000 - $1000

= $2000 Increase