During 2020, Spokane Ltd $\frac { 840,000 } {\$1,200,000 }$ How Should the Difference Between the Fair Value of the Corp

question 47

Multiple Choice

During 2020, Spokane Ltd. purchased the net assets of Tacoma Corp. for $ 635,000. On the date of the transaction, Tacoma reported $ 200,000 in liabilities. As well, the fair value of Tacoma's assets was: Current assets.........................................$360,000
Noncurrent assets.................................... $\frac { 840,000 } {\$1,200,000 }$ How should the difference between the fair value of the net assets acquired and the cost be accounted for by Spokane?

• A) The difference should be credited to retained earnings.
• B) The difference should be recognized as a gain in net income.
• C) The noncurrent assets should be reduced appropriately.
• D) The difference should be prorated between the current and the noncurrent assets.

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Definitions:

Perfect Complementarity

Refers to a situation in consumer choice theory where two goods are always consumed together in fixed proportions because one is perfectly complementary to the other.

Engel Curve

A graph showing the relationship between the income of a consumer and the amount of a good that the consumer buys, illustrating how spending on a good varies with income.

Left and Right Shoes

Items that are perfect complements in consumption, where the use of one without the other is generally considered incomplete or unsatisfactory.

Price of X

The price of X refers to the cost to buyers of acquiring a unit of good or service X in the market.