In consolidation at December 31,2009,what net adjustment is necessary for Hogan's Patent account?

Question

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In consolidation, intercompany transactions need to be eliminated to avoid double-counting. The patent account has a balance of $44,000 on the parent company's books and $30,000 on the subsidiary's books. The difference between the two is $14,000, which indicates that the parent company paid $14,000 more than the fair value of the patent. This excess needs to be eliminated, resulting in an adjustment of $14,000 to the patent account. However, this adjustment only affects the parent's share of the patent account. Since the parent owns 80% of the subsidiary, the adjustment needs to be multiplied by 80% to arrive at the net adjustment necessary for Hogan's Patent account. Therefore, the net adjustment is $11,200 ($14,000 x 80%). Additionally, the patent was amortized by $2,400 during the year, so the net adjustment necessary for Hogan's Patent account is $8,800 ($11,200 - $2,400). Therefore, the correct answer is B) $8,800.

In Consolidation at December 31,2009,what Net Adjustment Is Necessary for Hogan's