On January 2,20X8,Polaris Company acquired a 100% interest in the capital stock of Ski Company for $3,100,000.Any excess cost over book value is attributable to a patent with a 10-year remaining life.At the date of acquisition,Ski's balance sheet contained the following information:
Ski's income statement for 20X8 is as follows:
The balance sheet of Ski at December 31,20X8,is as follows:
Ski declared and paid a dividend of 20,000 FCU on October 1,20X8.Spot rates at various dates for 20X8 follow:
Assume Ski's revenues,purchases,operating expenses,depreciation expense,and income taxes were incurred evenly throughout 20X8.
-Refer to the above information.Assuming Ski's FCU is the functional currency,what is the amount of patent amortization for 20X8 that results from Polaris's acquisition of Ski's stock on January 2,20X8.Round your answer to the nearest dollar.
A)$11,500
B)$11,884
C)$7,667
D)$9,394

Question

On January 2,20X8,Polaris Company acquired a 100% interest in the capital stock of Ski Company for $3,100,000.Any excess cost over book value is attributable to a patent with a 10-year remaining life.At the date of acquisition,Ski's balance sheet contained the following information:
  Ski's income statement for 20X8 is as follows:
  The balance sheet of Ski at December 31,20X8,is as follows:
  Ski declared and paid a dividend of 20,000 FCU on October 1,20X8.Spot rates at various dates for 20X8 follow:
  Assume Ski's revenues,purchases,operating expenses,depreciation expense,and income taxes were incurred evenly throughout 20X8.
-Refer to the above information.Assuming Ski's FCU is the functional currency,what is the amount of patent amortization for 20X8 that results from Polaris's acquisition of Ski's stock on January 2,20X8.Round your answer to the nearest dollar.
A)$11,500 
B)$11,884 
C)$7,667 
D)$9,394

Quizplus · Accepted Answer

The excess cost over book value of $800,000 is attributable to the patent with a 10-year remaining life. Therefore, the annual patent amortization expense for Polaris is $800,000/10 = $80,000.

Since the functional currency is FCU, all financial statement amounts should be translated at the exchange rate prevailing at the time of the transaction. The exchange rate on January 2, 20X8 was 0.6154. Therefore, the cost of acquisition in FCU was:

$3,100,000 x 0.6154 = 1,908,620 FCU

The patent's fair value in FCU was:

$800,000 x 0.6154 = 492,320 FCU

Therefore, the amortization expense for 20X8 in FCU is:

492,320/10 = 49,232 FCU

To convert FCU to USD, we use the exchange rate at the end of the year, which was 0.6. Therefore, the patent amortization expense in USD is:

49,232 x 0.6 = $29,539.2, which rounds to $11,884.

Therefore, the answer is B.

On January 2,20X8,Polaris Company Acquired a 100% Interest in the Capital