On January 1,2008,Transport Corporation acquired 75 percent interest in Steamship Company for $300,000.Steamship is a Norwegian company.The local currency is the Norwegian kroner (NKr).The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years.Transport uses the equity method to account for its investment.Steamship's December 31,2008,trial balance has been translated into U.S.dollars,requiring a translation adjustment debit of $8,000.Steamship's net income translated into U.S.dollars is $35,000.It declared and paid an NKr 20,000 dividend on June 1,2008.Relevant exchange rates are as follows:
Assume the kroner is the functional currency.

-Based on the preceding information,in the journal entry to record the amortization of the patent for 2008 on the parent's books,Investment in Steamship Company will be debited for:

Question

On January 1,2008,Transport Corporation acquired 75 percent interest in Steamship Company for $300,000.Steamship is a Norwegian company.The local currency is the Norwegian kroner (NKr).The acquisition resulted in an excess of cost-over-book value of $25,000 due solely to a patent having a remaining life of 5 years.Transport uses the equity method to account for its investment.Steamship's December 31,2008,trial balance has been translated into U.S.dollars,requiring a translation adjustment debit of $8,000.Steamship's net income translated into U.S.dollars is $35,000.It declared and paid an NKr 20,000 dividend on June 1,2008.Relevant exchange rates are as follows:
Assume the kroner is the functional currency.
 
-Based on the preceding information,in the journal entry to record the amortization of the patent for 2008 on the parent's books,Investment in Steamship Company will be debited for:

Quizplus · Accepted Answer

The excess of cost over book value due to the patent is $25,000 and it has a remaining life of 5 years. Therefore, the annual amortization of the patent will be $5,000 ($25,000/5). Since Transport uses the equity method to account for its investment, the amortization of the patent will reduce the investment account. Hence, Investment in Steamship Company will be debited for $5,500 ($5,000 + $500, which is 75% of the translation adjustment debit of $8,000).

On January 1,2008,Transport Corporation Acquired 75 Percent Interest in Steamship