Acquisition—Excess allocation and amortization effect
On January 1, 2011, Pan acquired all the stock of Sim of Belgium for $1,200,000, when Sim had 20,000,000 euros
(Eu) capital stock and Eu 15,000,000 retained earnings. Sim’s net assets were fairly valued on this date and any cost/book value differential is due to a patent with a 10 year amortization period. Sim’s functional currency is the euro. The exchange rates for euros for 2011 were as follows:
|
January 1, 2011 |
$.030 |
|
Average for 2011 |
$.032 |
|
December 31, 2011 |
$.035 |
REQUIRED
1. Calculate the patent value from the business combination on January 1, 2011.
2. Determine patent amortization in U.S. dollars for 2011.
3. Prepare a journal entry on Pan’s books to record the patent amortization for 2011.