When Palm, Inc.acquired its 100% investment in Star Co, a foreign entity, the excess of cost over book value was 10,000FC.This excess was traceable to a 10-year patent.The elimination entry to distribute the excess will include a(n)
A)debit to Patent for 10,000FC multiplied by the current exchange rate
B)debit to Patent for 10,000FC multiplied by the historical exchange rate
C)credit to Investment in Star for 10,000FC multiplied by the average exchange rate
D)credit to Cumulative Translation Adjustment for 10,000FC multiplied by the historical exchange rate

Question

When Palm, Inc.acquired its 100% investment in Star Co, a foreign entity, the excess of cost over book value was 10,000FC.This excess was traceable to a 10-year patent.The elimination entry to distribute the excess will include a(n)
A)​debit to Patent for 10,000FC multiplied by the current exchange rate
B)​debit to Patent for 10,000FC multiplied by the historical exchange rate
C)​credit to Investment in Star for 10,000FC multiplied by the average exchange rate
D)​credit to Cumulative Translation Adjustment for 10,000FC multiplied by the historical exchange rate

Quizplus · Accepted Answer

The excess cost over the book value (i.e., goodwill) should be allocated to the identifiable assets acquired in the foreign entity's purchase. In this case, the excess is traceable to a 10-year patent, which should be recorded at its fair value in the acquiring company's financial books. Therefore, the elimination entry should debit the Patent account for 10,000FC multiplied by the current exchange rate to record the fair value of the acquired patent.