Kennedy Company acquired all of the outstanding common stock of Hastie Company o

Question

Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2013, when the exchange rate for the Canadian dollar (CAD) was U.S. $.70. The fair value of the net assets of Hastie was equal to their book value of CAD 450,000 on the date of acquisition. Any acquisition consideration excess over fair value was attributed to an unrecorded patent with a remaining life of five years. The functional currency of Hastie is the Canadian dollar. For the year ended December 31, 2013, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2013 was U.S. $.68, and the 2013 year-end exchange rate was U.S. $.65. Calculate the U.S. dollar amount allocated to the patent at January 1, 2013. $35,000 patent value

Explanation / Answer

1-Jan-13 350000 Rate in Candian CAD 1 = $               0.70 $                               350,000.00 = CAD 500,000 Less: Net assets = CAD 450000 Patent = CAD 50,000 Life = 5 Years Net Income = $          25,000 Share of Kennedy-100% = $          25,000 Patent in $ = 50000*.65 = $          32,500 Less: Share of net income $          25,000 Thus, amount allocated to patent is $ 25,000

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