In a Transaction Accounted for Using the Acquisition Method Where

question 6

Multiple Choice

In a transaction accounted for using the acquisition method where consideration transferred is less than fair value of net assets acquired, which statement is true?

• A) Negative goodwill is recorded.
• B) A deferred credit is recorded.
• C) A gain on bargain purchase is recorded.
• D) Long-term assets of the acquired company are reduced in proportion to their fair values. Any excess is recorded as a deferred credit.
• E) Long-term assets and liabilities of the acquired company are reduced in proportion to their fair values. Any excess is recorded as an extraordinary gain.

---

Definitions:

Variable Costs

Costs that vary directly with the level of production or volume of services provided, including materials and labor, contrasting with fixed costs.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent or salaries.

Time

A dimension in which events can be ordered from the past through the present into the future.

Contribution Margin

The amount by which a product's sales price exceeds its variable costs, contributing towards covering fixed costs and generating profit.