Publics Company Acquired the Net Assets of Citizen Company During

question 39

Multiple Choice

Publics Company acquired the net assets of Citizen Company during 20X5. 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 assets on the acquisition date was as follows: 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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Definitions:

Product Cost

Product cost refers to the total expenditure incurred to create a product, including direct materials, direct labor, and manufacturing overhead.

Period Cost

Expenses on a company's income statement that are not directly tied to the production of goods or services and are expensed in the period they are incurred.

Manufactured Products

Items that have undergone a manufacturing process, transforming raw materials into finished goods for sale.

Costs

The monetary value required to obtain materials, produce goods, or provide services, impacting the financial performance of a business.