Question

When Palm, Inc. acquired its 100% investment in Star Co., a foreign entity, the excess of cost over book value was 10,000 FC. This excess was traceable to a 10-year patent. Assume the foreign entity's local currency is its functional currency.
The elimination entry to amortize the excess will include a(n):

A. debit to Patent for 10,000FC multiplied by the current exchange rate.
B. debit to Patent for 10,000FC multiplied by the historical exchange rate.
C. credit to Investment in Star for 10,000FC multiplied by the average exchange rate.
D. credit to Cumulative Translation Adjustment for 10,000FC multiplied by the historical exchange rate.

Answer 1

Answer:

A. debit to Patent for 10,000FC multiplied by the current exchange rate.

Explanation:

Since the excess of cost over book value was 10,000FC and this excess was traceable to a 10-year patent.

The elimination entry to amortize the excess will include a debit to Patent for 10,000FC multiplied by the current exchange rate assuming the foreign entity's local currency is its functional currency.