On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information:
Perth's income statement for 20X8 is as follows:
The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow:
Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.

-Refer to the above information.Assuming Perth's local currency is the functional currency,what is the amount of patent amortization for 20X8 that results from Johnson's acquisition of Perth's stock on January 2,20X8.Round your answer to the nearest dollar.
A) $11,500
B) $11,884
C) $7,667
D) $9,394

Question

On January 2, 20X8, Johnson Company acquired a 100% interest in the capital stock of Perth Company for $3,100,000. Any excess cost over book value is attributable to a patent with a 10-year remaining life. At the date of acquisition, Perth's balance sheet contained the following information:
Perth's income statement for 20X8 is as follows:
   The balance sheet of Perth at December 31, 20X8, is as follows:
Perth declared and paid a dividend of 20,000 FCU on October 1, 20X8. Spot rates at various dates for 20X8 follow:
Assume Perth's revenues, purchases, operating expenses, depreciation expense, and income taxes were incurred evenly throughout 20X8.
  
-Refer to the above information.Assuming Perth's local currency is the functional currency,what is the amount of patent amortization for 20X8 that results from Johnson's acquisition of Perth's stock on January 2,20X8.Round your answer to the nearest dollar.
A) $11,500 
B) $11,884 
C) $7,667 
D) $9,394

Quizplus · Accepted Answer

The excess cost over book value of $300,000 is attributable to the patent with a remaining life of 10 years, therefore the annual patent amortization expense is $30,000 ($300,000 / 10). Perth's income statement shows a net income of 86,000 FCU. Using the average spot rate for the year of 0.02, net income in USD is $1,720 (86,000 FCU x 0.02). The income statement also shows depreciation expense of 18,000 FCU. Using the average spot rate for the year of 0.02, depreciation expense in USD is $360 (18,000 FCU x 0.02). Therefore, Johnson's share of Perth's net income for 20X8 is $1,720 - $360 = $1,360. Since Johnson acquired Perth on January 2, 20X8, it only owns Perth for 363 days in 20X8 (January 2 to December 31). Therefore, Johnson's share of Perth's annual amortization for 20X8 is $27,945 ($30,000 x 363/365) which rounds to $11,884 in nearest dollar.

On January 2, 20X8, Johnson Company Acquired a 100% Interest