2. Publics Company acquired the net assets of Citizen Company during 2016. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities, of which the fair value approximated book value. The fair value of Citizen's assets on the acquisition date was as follows: Current assets Noncurrent assets $ 800,000 600.000 S1.400,000 How should Publics account for the difference between the fair value of the net assets acquired and the acquisition price of $800,000? a. Retained earnings should be reduced by $200,000. b. A $600,000 gain on acquisition of business should be recognized. c. A $200,000 gain on acquisition of business should be recognized. d. A deferred credit of $200,000 should be set up and subsequently amortized to future net income over a period not to exceed 40 years.
2. Publics Company acquired the net assets of Citizen Company during 2016. The purchase price was $800,000. On the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in liabilities, of which the fair value approximated book value. The fair value of Citizen's assets on the acquisition date was as follows: Current assets Noncurrent assets $ 800,000 600.000 S1.400,000 How should Publics account for the difference between the fair value of the net assets acquired and the acquisition price of $800,000? a. Retained earnings should be reduced by $200,000. b. A $600,000 gain on acquisition of business should be recognized. c. A $200,000 gain on acquisition of business should be recognized. d. A deferred credit of $200,000 should be set up and subsequently amortized to future net income over a period not to exceed 40 years.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:2. Publics Company acquired the net assets of Citizen Company during 2016. The purchase price was $800,000. On
the date of the transaction, Citizen had no long-term investments in marketable equity securities and $400,000 in
liabilities, of which the fair value approximated book value. The fair value of Citizen's assets on the acquisition
date was as follows:
Current assets
Noncurrent assets
$ 800,000
600,000
$1.400.000
How should Publics account for the difference between the fair value of the net assets acquired and the
acquisition price of $800,000?
a. Retained earnings should be reduced by $200,000.
b. A $600,000 gain on acquisition of business should be recognized.
c. A $200,000 gain on acquisition of business should be recognized.
d. A deferred credit of $200,000 should be set up and subsequently amortized to future net income over a
period not to exceed 40 years.
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