In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?
A) Negative goodwill is recorded.
B) A deferred credit is recorded.
C) A gain on bargain purchase is recorded.
D) Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit.
E) Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain.

Question

Quizplus · Accepted Answer

When the consideration transferred is less than the fair value of net assets acquired, it results in a gain on bargain purchase. This gain is recorded as an extraordinary gain in the income statement. It is important to note that negative goodwill is not recorded under the acquisition method. A deferred credit may be recorded if the consideration transferred is contingent on certain conditions being met. The remaining answer choices are not accurate statements.

In a Transaction Accounted for Using the Acquisition Method Where