1. Big Company acquired the following assets and liabilities of Little Company (
ID: 2460494 • Letter: 1
Question
1. Big Company acquired the following assets and liabilities of Little Company (fair values listed below) for $470,000 cash.
Assuming these items are all recorded at their acquisition date fair values, what additional item needs to be recorded and how will it be accounted for in the future?
$30,000 Goodwill, capitalized and tested for impairment
$30,000 Bargain purchase, recognized in current earnings
$30,000 Bargain purchase, capitalized and recognized over time
$30,000 Goodwill, capitalized and amortized over time
2. For all acquired contingencies, the acquirer should do all of the following except:
Provide documentation from the acquirer's attorney regarding pending lawsuits and loan guarantees
Provide a description of each contingency
Disclose the amount recognized at the acquisition date
Describe the estimated range of possible undiscounted outcomes of the contingency
Inventory $70,000 Land 100,000 Buildings and Equipment 320,000 Current Liabilities 50,000Explanation / Answer
This goodwill will be capitalized and tested for impairement, it is because obtaining the fair market value of the assets and liabilities of the acquired unit , as the fair value may be lower then the book value and it is sometime difficult to find the fair value of the assets and liabilities so the goodwill is capitalized and tested for impairment.
Answer 2:
For all acquired contingencies, the acquirer should do all of the following except providing documentation from the acquirer's attorney regarding pending lawsuits and loan guarantees as the fair value of the contingecies cannot be determined at the time of acquisitions.
Inventory $70,000 Land $100,000 Buildings and Equipment $320,000 Current Liabilities $50,000 Net assets $440,000 Acquisition cost $470,000 Goodwill $30,000Related Questions
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