Big Company acquired the following assets and liabilities of Little Company (fair values listed below)for $470,000 cash.

Assuming these items are all recorded at their acquisition date fair values,what additional item needs to be recorded and how will it be accounted for in the future?

Question

Big Company acquired the following assets and liabilities of Little Company (fair values listed below)for $470,000 cash.

Assuming these items are all recorded at their acquisition date fair values,what additional item needs to be recorded and how will it be accounted for in the future?

Quizplus · Accepted Answer

The fair value of the net identifiable assets of Little Company is $500,000 ($400,000 assets - $100,000 liabilities), but Big Company paid only $470,000. This creates $30,000 of goodwill, which needs to be capitalized and tested for impairment in future periods. Therefore, the correct option is A.

Big Company Acquired the Following Assets and Liabilities of Little