When There Is an Excess of Fair Value Over Cost

question 6

Multiple Choice

When there is an excess of fair value over cost relative to an identifiable asset,

• A)​the recording of a deferred tax liability is required for the excess.
• B)​the recording of a deferred tax liability is necessary for the amount of the tax rate times the excess.
• C)no amortization of a deferred tax liability is necessary​
• D)​this excess does not create a deferred tax liability that needs to be recorded.

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Definitions:

Percent of Sales Method

A financial forecasting approach that estimates future financial statements' items as a percentage of projected sales.

Allowance Method

An accounting technique that estimates and accounts for bad debts as an expense before they are actually confirmed as uncollectible.

Maturity Date

Maturity Date is the specified date on which the principal amount of a loan, bond, or other financial instrument is due to be repaid.

Note Receivable

A note receivable is an amount of money owed to a business or individual that is evidenced by a written promissory note specifying the terms of payment.