On January 1, 2010, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2011, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones: Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies.
The following information is available regarding Jones and Whitton: Compute the amount allocated to trademarks recognized in the January 1, 2011 consolidated balance sheet.

Question

On January 1, 2010, Jones Company bought 15% of Whitton Company. Jones paid $150,000 for these shares, an amount that exactly equaled the proportionate book value of Whitton. On January 1, 2011, Whitton acquired 80% ownership of Jones. The following data are available concerning Whitton's acquisition of Jones:  Excess fair value over book value (assigned to trademarks) is amortized over 20 years. The initial value method is used by both companies.
The following information is available regarding Jones and Whitton:  Compute the amount allocated to trademarks recognized in the January 1, 2011 consolidated balance sheet.

Quizplus · Accepted Answer

To compute the amount allocated to trademarks recognized in the January 1, 2011 consolidated balance sheet, we need to first calculate the excess fair value over book value (assigned to trademarks) of Jones. This can be calculated as:

Fair value of Jones = $1,500,000
Book value of Jones = $880,000
Excess fair value over book value = $620,000

This excess fair value over book value is assigned to trademarks and is amortized over 20 years. Since Whitton acquired 80% ownership of Jones on January 1, 2011, they are entitled to 80% of the excess fair value over book value of Jones. This can be calculated as:

80% x $620,000 = $496,000

Therefore, the amount allocated to trademarks recognized in the January 1, 2011 consolidated balance sheet is $496,000 / 5 years remaining = $99,200. Rounded to nearest thousand, the answer is B) $100,000.

On January 1, 2010, Jones Company Bought 15% of Whitton