Question

Paar Corporation bought 100 percent of Kimmel, Inc., on January 1, 2015. On that date, Paar’s equipment (10-year remaining life) has a book value of $420,000 but a fair value of $520,000. Kimmel has equipment (10-year remaining life) with a book value of $272,000 but a fair value of $400,000. Paar uses the equity method to record its investment in Kimmel. On December 31, 2017, Paar has equipment with a book value of $294,000 but a fair value of $445,200. Kimmel
has equipment with a book value of $190,400 but a fair value of $357,000. What is the consolidated balance for the
Equipment account as of December 31, 2017?
a. $574,000
b. $802,200
c. $612,600
d. $484,400

Answer 1

Answer:

The answer is: A) $574,000

Explanation:

We must start with Paar's equipment book value as of December 31, 2017 of $294,000.

Then we add Kimmel's equipment book value as of December 31, 2017 of $190,400.

We also add the original acquisition date allocation, we must allocate the cost of acquisition on the basis of their fair value: ($400,000 − $272,000) = $128,000.

We subtract the amortization of the original acquisition allocation: ($128,000 / 10 years) x 3 years = -$38,400

Finally to get the consolidated equipment account as of December 31, 2017 we add up $294,000 + $190,400 + $128,000 - $38,400 = $574, 000