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 fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost of acquiring Easton. Easton will report the excess amount as
A) a gain.
B) part of current income in the year of combination.
C) a deferred credit and amortize it.
D) paid-in capital.

Question

Quizplus · Accepted Answer

The excess amount is considered a gain because Easton was able to acquire Lofton at a bargain price, meaning it paid less than the fair value of the identifiable assets acquired less the fair value of liabilities assumed. This gain should be recognized in the financial statements of Easton in the year of combination. Therefore, option A is the correct answer.

Easton Company and Lofton Company Were Combined in a Purchase