Paranich Co

question 16

Multiple Choice

Paranich Co. acquired Crowley Co. in a business combination at December 31, 20X4. Crowley has a capital asset that it has been amortizing at a rate of $10,000 per year. At the time of the acquisition, the asset had a book value of $70,000 and a fair value of $77,000. The asset has a remaining life of seven years. With respect to this asset, how much amortization expense should Paranich report on its December 31, 20X5, consolidated financial statements?

• A)$ 1,000
• B)$ 7,700
• C)$10,000
• D)$11,000

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Definitions:

Interest Rates

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.

Interest Rate Swap

A financial derivative contract in which two parties agree to exchange one stream of interest payments for another, based on a specified principal amount.

Fixed Rate

An interest rate that remains constant over the life of a loan or investment, unaffected by market fluctuations.

Derivative

A financial tool whose worth derives from the worth of a different asset.