P Company Purchased the Net Assets of S Company for $225,000

question 38

Multiple Choice

P Company purchased the net assets of S Company for $225,000. On the date of P's purchase, S Company had no investments in marketable securities and $30,000 (book and fair value) of liabilities. The fair values of S Company's assets, when acquired, were: How should the $45,000 difference between the fair value of the net assets acquired ($270,000) and the consideration paid ($225,000) be accounted for by P Company?

• A) The noncurrent assets should be recorded at $ 135,000.
• B) The $45,000 difference should be credited to retained earnings.
• C) The current assets should be recorded at $102,000, and the noncurrent assets should be recorded at $153,000.
• D) An ordinary gain of $45,000 should be recorded.

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Definitions:

Matching Law

A principle of behavioral psychology that states an individual will choose to engage in behaviors proportional to the rewards offered for those behaviors.

FR 10 Schedule

A fixed-ratio schedule of reinforcement where a response is rewarded only after it has been performed a specified number of times, in this case, ten times.

FR 40 Schedule

A type of fixed-ratio schedule in operant conditioning where a response is reinforced only after a specific number of responses have been made, in this case, every 40th response.

Operant Chamber

A laboratory apparatus used to study animal behavior in operant conditioning, allowing systematic presentation of stimuli and recording of responses; also known as a Skinner box.