The Following Information Pertains to Questions

question 15

Multiple Choice

The following information pertains to questions
On January 1,2009,Hanson Inc.purchased 54,000 of Marvin Inc.'s 90,000 outstanding voting shares for $240,000.On that date,Marvin's common stock and retained earnings were valued at $60,000 and $90,000 respectively.Marvin's book values approximated its fair values on the acquisition date with the exception of the company's equipment,which was estimated to have a fair market value that was $50,000 in excess of its recorded book value.The equipment was estimated to have a useful life of eight years.Both companies use straight line amortization exclusively.
On January 1,2010,Hanson purchased an additional 9,000 shares of Marvin Inc.on the open market for $45,000.On this date,Marvin's book values were equal to its fair market values with the exception of the company's equipment,which is now thought to be undervalued by $60,000.Moreover,the equipment's estimated useful life was revised to 4 years on this date.
Marvin's net Income and dividends for 2009 and 2010 are as follows: Marvin's goodwill was subject to an impairment loss of $5,000 during 2009.Hanson ABC Inc.uses the equity method to account for its investment in Marvin Inc.
-What would be the amount of the unamortized acquisition differential at the end of 2010?

• A)Nil.
• B)$30,000
• C)$24,000
• D)$42,000

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Definitions:

Economic Theory

A set of principles and models that explain how economies function, covering the distribution, consumption, and production of goods and services.

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to the existence of insurance or similar safety nets.

Adverse Selection

A situation in which one party in a transaction has more or better information than the other, often leading to an imbalance and potentially unfavorable outcomes.

Hidden Characteristics

Traits or features of a product or service that are not immediately observable to the buyer, potentially leading to information asymmetry.