On January 1,20X6,Plus Corporation acquired 90 percent of Side Corporation for $180,000 cash.Side reported net income of $30,000 and dividends of $10,000 for 20X6,20X7,and 20X8.On January 1,20X6,Side reported common stock outstanding of $100,000 and retained earnings of $60,000,and the fair value of the noncontrolling interest was $20,000.It held land with a book value of $30,000 and a market value of $35,000 and equipment with a book value of $50,000 and a market value of $60,000 at the date of combination.The remainder of the differential at acquisition was attributable to an increase in the value of patents,which had a remaining useful life of five years.All depreciable assets held by Side at the date of acquisition had a remaining economic life of five years.Plus uses the equity method in accounting for its investment in Side.
-Based on the preceding information,the increase in the fair value of patents held by Side is:

Question

Quizplus · Accepted Answer

The total consideration paid by Plus Corporation for acquiring 90% ownership in Side Corporation was $180,000. Out of the total consideration, we need to allocate the fair value of identifiable assets and liabilities of Side Corporation at the date of acquisition. 
The identifiable assets and liabilities are as follows:
Common stock outstanding = $100,000
Retained earnings = $60,000
Land = $35,000
Equipment = $60,000
Total identifiable assets = $255,000
Less: Common stock outstanding and retained earnings = $160,000
Fair value of identifiable net assets = $95,000

The excess purchase price over the fair value of identifiable assets and liabilities is considered as goodwill, which is $180,000 - $95,000 = $85,000. 
Out of the remaining $85,000, $20,000 is allocated to the fair value of the non-controlling interest, leaving $65,000 to be allocated to the fair value of patents. 
Therefore, the increase in the fair value of patents is $65,000, which means option B is correct.

On January 1,20X6,Plus Corporation Acquired 90 Percent of Side Corporation