During 2008, Bond Company purchased the net assets of May Corporation for $950,000. On the date of the transaction, May had $300,000 of liabilities. The fair value of May's assets when acquired were as follows:
How should the $550,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($950,000) be accounted for by Bond?
A) The $550,000 difference should be credited to retained earnings.
B) The $550,000 difference should be recognized as an extraordinary gain.
C) The current assets should be recorded at $375,000 and the noncurrent assets should be recorded at $875,000.
D) A deferred credit of $550,000 should be set up and then amortized to income over a period not to exceed forty years.

Question

During 2008, Bond Company purchased the net assets of May Corporation for $950,000. On the date of the transaction, May had $300,000 of liabilities. The fair value of May's assets when acquired were as follows:
 How should the $550,000 difference between the fair value of the net assets acquired ($1,500,000) and the cost ($950,000) be accounted for by Bond?
A) The $550,000 difference should be credited to retained earnings. 
B) The $550,000 difference should be recognized as an extraordinary gain. 
C) The current assets should be recorded at $375,000 and the noncurrent assets should be recorded at $875,000. 
D) A deferred credit of $550,000 should be set up and then amortized to income over a period not to exceed forty years.

Quizplus · Accepted Answer

$1,500,000 - $950,000 = $550,000 extraordinary gain.

During 2008, Bond Company Purchased the Net Assets of May