Kennedy Company acquired all of the outstanding common stock of Hastie Company of Canada for U.S. $350,000 on January 1, 2021, when the exchange rate for the Canadian dollar (CAD) was U.S. $0.70. 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, 2021, Hastie's trial balance net income was translated at U.S. $25,000. The average exchange rate for the Canadian dollar during 2021 was U.S. $0.68, and the 2021 year-end exchange rate was U.S. $0.65.Compute the amount of the patent reported in the consolidated balance sheet at December 31, 2021.

A) $28,200.
B) $25,700.
C) $35,000.
D) $27,200.
E) $26,000.

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SOBIA MUSHTAQ · Accepted Answer

Final Answer : E, Explanation :  The excess of acquisition cost over the fair value of net assets is $35,000 (CAD 450,000 * 0.70 = $315,000; $350,000 - $315,000 = $35,000). This amount is attributed to the patent. The patent is amortized over 5 years, so the annual amortization is $7,000 ($35,000 / 5). For 2021, the amortization is $7,000. The patent's value at year-end is $35,000 - $7,000 = $28,000. Translated at the year-end rate of 0.65, the patent is reported at $28,000 * 0.65 = $26,000.

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