Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks?
$\quad $Plant and Equipment $\quad $Long-Term Debt
A)$\quad $Fair value$\quad $$\quad $$\quad $$\quad $ $\quad $Drake's carrying amount
B)$\quad $?Fair value $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Fair value
C)$\quad $?Drake's carrying amount$\quad $ Fair value
D)$\quad $?Drake's carrying amount $\quad $Drake's carrying amount

Question

Larry's Liquor acquired the net assets of Drake's Drinks in exchange for cash.The acquisition price exceeds the fair value of the net assets acquired.How should Larry's Liquor determine the amounts to be reported for the plant and equipment, and for long-term debt of the acquired Drake's Drinks?
 $\quad $Plant and Equipment $\quad $Long-Term Debt
A)$\quad $Fair value$\quad $$\quad $$\quad $$\quad $ $\quad $Drake's carrying amount
B)$\quad $?Fair value $\quad $$\quad $$\quad $$\quad $$\quad $$\quad $Fair value
C)$\quad $?Drake's carrying amount$\quad $ Fair value
D)$\quad $?Drake's carrying amount $\quad $Drake's carrying amount

Quizplus · Accepted Answer

In a business combination, the acquirer should recognize the assets acquired and liabilities assumed at their fair values as of the acquisition date. Therefore, Larry's Liquor should report the plant and equipment and long-term debt at fair value, rather than Drake's carrying amount, as the acquisition price exceeds the fair value of the net assets acquired.

Larry's Liquor Acquired the Net Assets of Drake's Drinks in Exchange