During 2017, Spokane Ltd.purchased the net assets of Tacoma Corp.for $635,000.On the date of the transaction, Tacoma reported $200,000 in liabilities.As well, the fair value of Tacoma's assets were: How should the difference between the fair value of the net assets acquired and the cost be accounted for by Spokane?
A)The difference should be credited to retained earnings.
B)The difference should be recognized as a gain in net income.
C)The noncurrent assets should be reduced appropriately.
D)The difference should be prorated between the current and the noncurrent assets.

Question

During 2017, Spokane Ltd.purchased the net assets of Tacoma Corp.for $635,000.On the date of the transaction, Tacoma reported $200,000 in liabilities.As well, the fair value of Tacoma's assets were:  How should the difference between the fair value of the net assets acquired and the cost be accounted for by Spokane?
A)The difference should be credited to retained earnings. 
B)The difference should be recognized as a gain in net income. 
C)The noncurrent assets should be reduced appropriately. 
D)The difference should be prorated between the current and the noncurrent assets.

Quizplus · Accepted Answer

The difference between the fair value of the net assets acquired and the cost should be recognized as a gain in net income. This is because Spokane Ltd.purchased the net assets of Tacoma Corp.for less than their fair value, resulting in a gain for Spokane.