In a business combination that occurred 2 years ago, there was a fair value adjustment due to land as the fair value was greater than its recorded book value by $20,000. The company's tax rate is 40%. What is the required adjustment upon consolidation this year?
A)There is no required adjustment upon consolidation.
B)Increase the carrying value of land by $20,000 and increase the deferred tax liability of $8,000.
C)Increase the carrying value of land by $12,000
D) Recognize goodwill for $20,000

Question

Quizplus · Accepted Answer

When there is a fair value adjustment due to land in a business combination, it results in a deferred tax liability, which must be recognized upon consolidation. The increase in carrying value of land by $20,000 will result in an increase in the deferred tax liability of $8,000 (40% of $20,000). Therefore, the required adjustment upon consolidation this year is to increase the carrying value of land by $20,000 and increase the deferred tax liability of $8,000.

In a Business Combination That Occurred 2 Years Ago, There