McGuire Company Acquired 90 Percent of Hogan Company on January

question 104

Multiple Choice

McGuire Company acquired 90 percent of Hogan Company on January 1, 2014, for $234,000 cash. This amount is reflective of Hogan's total fair value. Hogan's stockholders' equity consisted of common stock of $160,000 and retained earnings of $80,000. An analysis of Hogan's net assets revealed the following: $$\begin{array} { l c c } & \text { Book Value } & \text { Fair Value } \\\text { Buildings (10-year life) } & \$ 10,000 & \$ 8,000 \\\text { Equipment (4-year life) } & 14,000 & 18,000 \\\text { Land } & 5,000 & 12,000\end{array}$$ Any excess consideration transferred over fair value is attributable to an unamortized patent with a useful life of 5 years. In consolidation at January 1, 2014, what adjustment is necessary for Hogan's Buildings account?

• A)$2,000 increase.
• B)$2,000 decrease.
• C)$1,800 increase.
• D)$1,800 decrease.
• E)No change.

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Definitions:

Tangible Asset

An asset with physical form and value, such as machinery, buildings, or land.

Goodwill

An intangible asset that arises when a business is acquired for more than the sum of its fair value of identifiable assets and liabilities, representing items like reputation or brand value.

Franchisor

The parent company that develops a product or business process and sells the rights to franchisees.

Business Process

A series of steps performed by a group of stakeholders to achieve a concrete goal, typically involving defining, measuring, analyzing, improving, and controlling processes.