On 1/1/16, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash.
ID: 2540740 • Letter: O
Question
On 1/1/16, Sey Mold Corporation acquired 100% of DotDot.Com for $2,000,000 cash. On the date of acquisition, DotDot's net book value was $900,000. DotDot's assets included land that was undervalued by $300,000, a building that was undervalued by $400,000, and equipment that was overvalued by $50,000. The building had a remaining useful life of 8 years and the equipment had a remaining useful life of 4 years. Any excess fair value over consideration transferred is allocated to an undervalued patent and is amortized over 5 years. Determine the amortization expense related to the combination at the year-end date of 12/31/16. 2. Determine the amortization expense related to the consolidation at the year-end date of 12/31/24.
Explanation / Answer
Calculation of Patent
Fair Value of Acquisition Price 1/1/16
2,000,000
Less: Book Value 1/1/16
900,000
Fair value paid in excess of book Value
1,100,000
Allocation of Excess Value paid
Land
(300,000)
Building
(400,000)
Equipment
50,000
Remaining Balance allocated to Patent
450,000
Amortization expenses
Assets
Original Value 1/1/16
A
Estimated life
B
Amortization per year (A/B)
Building
300,000
-
N/A
Land
400,000
8 years
50,000
Equipment
(50,000)
4 years
(12,500)
Patent
450,000
5 years
90,000
Total Amortization expenses
127,500
Total Amortization expenses during the year = $127,500
Amortization expenses during the year 12/31/2024 = $0
Reason:
Period between 1/1/16 – 12/31/2014 = 9 years and the maximum life of any assets was land having 8 year of life. So, all the assets are amortized till 12/31/2023.
Fair Value of Acquisition Price 1/1/16
2,000,000
Less: Book Value 1/1/16
900,000
Fair value paid in excess of book Value
1,100,000
Allocation of Excess Value paid
Land
(300,000)
Building
(400,000)
Equipment
50,000
Remaining Balance allocated to Patent
450,000
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