Question

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess over fair value was attributed to an unrecorded patent with a remaining life of five years. The functional currency of Hastie is the Canadian dollar. For the year ended December 31, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65. Amortization of the patent, translated, for 2021 would be A. $7,000. B. $10,000. C. $6,800. D. $9,000. E. $6,500.

Answer 1

The annual amortization of the unrecorded patent for Kennedy Company's acquisition of Hastie Company, when translated to U.S. dollars for 2021, is U.S. $6,800.

The correct option is C.

Step-by-step explanation:

The question involves calculating the amortization of an unrecorded patent in U.S. dollars, given the acquisition consideration excess over the fair value of net assets at a specific exchange rate. Kennedy Company acquired Hastie Company for U.S. $350,000 on January 1, 2021, when the exchange rate was U.S. $0.70 to CAD $1.

The fair value of net assets was CAD 450,000, and the excess paid is attributed to a patent with a five-year life. To find the translated amortization for 2021, we need to follow these steps:

Determine the excess paid in CAD: U.S. $350,000 / 0.70 = CAD 500,000.

Calculate excess over fair value: CAD 500,000 - CAD 450,000 = CAD 50,000.

Annual amortization in CAD: CAD 50,000 / 5 years = CAD 10,000.

Translate to U.S. dollars using the average exchange rate for 2021: CAD 10,000 * U.S. $0.68 = U.S. $6,800.

Therefore, the annual amortization of the patent, translated to U.S. dollars for 2021, is U.S. $6,800, which corresponds to the option C from the provided choices.

The correct option is C.