Foster Ltd

question 4

Multiple Choice

Foster Ltd.acquired 100% of Benson Ltd.The carrying values of Benson's capital assets differed from their fair values and their fair values differ from their adjusted cost bases for tax purposes.Which of the following statements is true?

• A)The difference between Benson's carrying values and its fair values creates a deferred tax asset or liability that is part of the allocation of the acquisition cost.
• B)The difference between Benson's fair values and its adjusted cost bases for tax purposes creates a deferred tax asset or liability that is part of the allocation of the acquisition cost.
• C)The difference between Benson's carrying values and its adjusted cost bases for tax purposes creates a deferred tax asset or liability that is part of the allocation of the acquisition cost.
• D)No deferred tax asset or liability arises from the above situation.

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Definitions:

Callable Bonds

Securities that the issuer has the option to repurchase before they reach their due date, at a specified call price.

Carrying Amount

The net amount at which an asset or liability is recognized on the balance sheet, considering factors like depreciation or amortization.

Discount on Bonds Payable

The discrepancy between a bond's nominal value and its market price when the bond is sold below its nominal value.

Journal Entry

A record of a financial transaction in an accounting system, consisting of debits and credits to maintain the double-entry accounting.