A Subsidiary Was Acquired for Cash in a Business Combination

question 32

Multiple Choice

A subsidiary was acquired for cash in a business combination on December 31, 20X1. The purchase price exceeded the fair value of identifiable net assets. The acquired company owned equipment with a fair value in excess of the book value as of the date of the combination. A consolidated balance sheet prepared on December 31, 20X1, would

• A)report the excess of the fair value over the book value of the equipment as part of goodwill.
• B)report the excess of the fair value over the book value of the equipment as part of the plant and equipment account.
• C)reduce retained earnings for the excess of the fair value of the equipment over its book value.
• D)make no adjustment for the excess of the fair value of the equipment over book value. Instead, it is an adjustment to expense over the life of the equipment.