Asked by Giavanna Battaglia on Jul 13, 2024
Verified
Paranich Co. acquired Crowley Co. in a business combination at December 31, 20X4. Crowley has a capital asset that it has been amortizing at a rate of $10,000 per year. At the time of the acquisition, the asset had a book value of $70,000 and a fair value of $77,000. The asset has a remaining life of seven years. With respect to this asset, how much amortization expense should Paranich report on its December 31, 20X5, consolidated financial statements?
A) $ 1,000
B) $ 7,700
C) $10,000
D) $11,000
Amortization Expense
Amortization expense is the cost associated with gradually writing off the initial cost of an intangible asset over its useful life.
Capital Asset
Long-term property or investment held by a business or individual, intended for use or investment purposes rather than for sale.
- Acquire knowledge on the implementation of fair value adjustments subsequent to acquisition and the process of their amortization.
Verified Answer
BS
Bhalwinder SinghJul 16, 2024
Final Answer :
D
Explanation :
Paranich should report amortization expense based on the fair value of the asset at the time of acquisition, which is $77,000, over its remaining useful life of 7 years. This results in an annual amortization expense of $11,000 ($77,000 / 7 years).
Learning Objectives
- Acquire knowledge on the implementation of fair value adjustments subsequent to acquisition and the process of their amortization.
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