Plummet Corporation reported the book value of its net assets at $400,000 when Zenith Corporation acquired 100 percent ownership.The fair value of Plummet's net assets was determined to be $510,000 on that date.
-Based on the preceding information,what amount will be recorded by Zenith as its investment in Plummet,if it paid $500,000 for the acquisition?

Question

Quizplus · Accepted Answer

In a business combination, the acquirer records its investment at the fair value of the consideration paid. Therefore, Zenith will record its investment in Plummet at $500,000. The fact that the book value of Plummet's net assets was $400,000 and the fair value was $510,000 is relevant for calculating the goodwill or bargain purchase gain, but not the initial investment. Therefore, the correct option is (D) $510,000.

Plummet Corporation Reported the Book Value of Its Net Assets