During 2020, 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 was: Current assets.........................................$360,000
Noncurrent assets....................................$\frac { 840,000 } {\$1,200,000 }$ 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

Quizplus · Accepted Answer

The difference between the fair value of the net assets acquired and the cost paid is recognized as a gain in net income when the purchase price is less than the fair value of the net assets. This is because the purchase is considered to have been made at a bargain.

During 2020, Spokane Ltd 840,000$1,200,000\frac { 840,000 } {\$1,200,000 }$1,200,000840,000​ How Should the Difference Between the Fair Value of the Corp

During 2020, Spokane Ltd $\frac { 840,000 } {\$1,200,000 }$ How Should the Difference Between the Fair Value of the Corp