If the Value Implied by the Purchase Price of an Acquired

question 33

Multiple Choice

If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be:

• A) allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary gain.
• B) recognized as ordinary gain or loss.
• C) allocated to reduce long-lived assets.
• D) accounted for as goodwill.

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Definitions:

Law of Diminishing Returns

The principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain constant.

Cost Curve

A graphical representation showing the cost of producing different quantities of output, typically illustrating concepts such as marginal and average costs.

Per Unit Costs

The average cost incurred for producing or acquiring one unit of a product or service.

Resource Prices

Refer to the market values assigned to natural or human-made materials that are used in the production of goods and services.