P Company Paid $500,000 for 100% of the Net Assets

question 18

Multiple Choice

P Company paid $500,000 for 100% of the net assets (assets less liabilities) of S Company.The book value of S Company's net assets was only $475,000.As a result of this acquisition,what must P Company recognize?

• A) negative goodwill
• B) goodwill
• C) gain
• D) loss

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Definitions:

Manufacturing Overhead

All the indirect costs associated with manufacturing a product, such as utilities, maintenance, and factory equipment depreciation, not directly traceable to a specific product.

Activity Cost Drivers

Refers to factors that influence or contribute to the expenses associated with different business activities.

ABC Costing System

Activity-Based Costing is an accounting method that assigns costs to products or services based on the activities that go into producing them.

Plantwide Overhead Allocation

A method of distributing overhead costs to all products or services based on a single cost driver across the entire plant or factory.