Question

Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. After revaluing noncurrent assets to zero, there was still some "negative goodwill." Proper accounting treatment by Easton is to report the amount as a. an extraordinary gain. b. part of current income in the year of combination. c. a deferred credit and amortize it. d. paid-in capital.

Answer 1

Option A

Proper accounting treatment by Easton is to report the amount as  an extraordinary gain.

Explanation:

Extraordinary items are profits or losses in a company's economic statements that are rare and exceptional. A matter is considered unusual if it is not a portion of a company’s regular, day-to-day transactions. The recording of an extraordinary item applied to be a remarkably exceptional event.

In approximately all events, an event or transaction was deemed to be a section of the regular operating activities of a business, and so was listed as such. The concept behind the extraordinary items accounting treatment is to limit "once-in-a-lifetime" events from skewing a company's expected earnings.