P Corp. owns 800 voting common shares out of Q Corp.'s 1,000 outstanding voting common shares, which it accounts for using the equity method. On December 31, 2018, the shareholder's equity section of Q Corp. was comprised of $15,000 in common shares and retained earnings with the amount of $450,000. Q Corp. reported net Income and paid dividends of $120,000 and $20,000 respectively for the year ended December 31, 2019.
On January 1, 2020, P Corp. sold 200 shares of its investment in Q Corp. for $125,000. On January 1, 2019, the investment account had a balance of $420,000. The acquisition differential was to be allocated as follows:
60% to patents (6 year remaining life).
30% to equipment (9 year remaining life).
What was the amount of acquisition differential amortization for 2019?
A) Nil
B) $6,000
C) $8,000
D) $12,000

Question

Quizplus · Accepted Answer

The acquisition differential is amortized based on the allocation to patents and equipment. For 2019, the amortization for patents is 60% of the differential divided by 6 years, and for equipment, it is 30% divided by 9 years. The total amortization is the sum of these two amounts.

P Corp Owns 800 Voting Common Shares Out of Q Corp