Question

P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were: Current assets $120,000 Noncurrent assets 180,000 Total $300,000 How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company? A. The noncurrent assets should be recorded at $ 135,000. B. The $45,000 difference should be credited to retained earnings. C. The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000. D. A gain of $45,000 should be recorded.

Answer 1

Answer:

D. A gain of $45,000 should be recorded.

Explanation:

The computation is shown below

Fair value difference is

= Total assets - book & fair value of liabilities - net assets purchased

= $300,000 - $30,000 - $225,000

= $270,000 - $225,000

= $45,000

hence, the correct option is d. $45,000 and the same is to be considered

We simply applied the above formula