Question

On January 1, 2017, Grand Haven, Inc., reports net assets of $760,000 although equipment (with a four-year remaining life) having a book value of $440,000 is worth $500,000 and an unrecorded patent is valued at $45,000. Van Buren Corporation pays $692,000 on that date to acquire an 80 percent equity ownership in Grand Haven. If the patent has a remaining life of nine years, at what amount should the patent be reported on Van Buren's consolidated balance sheet at December 31, 2018?

a. $28,000
b. $35,000
c. $36,000
d. $40,000

Answer 1

The patent should be reported on Van Buren's consolidated balance sheet at $36,000.

Step-by-step explanation:

To determine the amount at which the patent should be reported on Van Buren's consolidated balance sheet at December 31, 2018, we need to calculate the amortization expense for the patent. The remaining life of the patent is nine years, so the annual amortization expense is $45,000 / 9 = $5,000. Since Van Buren owns an 80% equity ownership in Grand Haven, the patent should be reported on Van Buren's consolidated balance sheet at 80% of its book value.

The book value of the patent is $45,000, so the amount to be reported on Van Buren's consolidated balance sheet is $45,000 * 80% = $36,000. Therefore, the correct answer is option c. $36,000.