Publics Company acquired the net assets of Citizen Company during 20X5. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities, of which the fair value approximated book value. The fair value of Citizen assets on the acquisition date was as follows: How should Publics account for the difference between the fair value of the net assets acquired and the acquisition price of $800,000?
A)Retained earnings should be reduced by $200,000.
B)A $600,000 gain on acquisition of business should be recognized.
C)A $200,000 gain on acquisition of business should be recognized.
D)A deferred credit of $200,000 should be set up and subsequently amortized to future net income over a period not to exceed 40 years.

Question

Publics Company acquired the net assets of Citizen Company during 20X5. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities, of which the fair value approximated book value. The fair value of Citizen assets on the acquisition date was as follows:  How should Publics account for the difference between the fair value of the net assets acquired and the acquisition price of $800,000?
A)Retained earnings should be reduced by $200,000. 
B)A $600,000 gain on acquisition of business should be recognized. 
C)A $200,000 gain on acquisition of business should be recognized. 
D)A deferred credit of $200,000 should be set up and subsequently amortized to future net income over a period not to exceed 40 years.

Quizplus · Accepted Answer

11eb11de_933b_be7a_ad38_057ed61d882c_TB2014_00 If the acquisition price exceeds the fair value of the identifiable net assets acquired, the price deficiency is a gain.

Publics Company Acquired the Net Assets of Citizen Company During