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 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

Equipments ( 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 Buildings account?


A. $1,620 increase.

B. $1,620 decrease.

C. $1,800 increase.

D. $1,800 decrease.

E. No adjustment is necessary.

Answer 1

D. $1,800 Decrease

Step-by-step explanation:

book value Fair value adjustment

01 Jan 10,000 8,000 2,000

Depreciation -1000 -800 -200

31 Dec 9,000 7,200 1,800 Decrease