During 2021, Carla Vista Company purchased the net assets of Martinez Corporation for $219560O. On the date of the transaction, Martinez had $598800 of liabilities. The fair value of Martinez's assets when acquired were as follows: Current assets $1077840 Noncurrent assets 2514960 $3592800 How should the $798400 difference between the fair value of the net assets acquired ($2994000) and the cost ($2195600) be accounted for by Carla Vista? O The $798400 difference should be recognized as a gain. O The current assets should be recorded at $1077840 and the noncurrent assets should be recorded at $1716560.. O The $798400 difference should be credited to retained earnings. O A deferred credit of $798400 should be set'up and then amortized to income over a period not to exceed forty years.
During 2021, Carla Vista Company purchased the net assets of Martinez Corporation for $219560O. On the date of the transaction, Martinez had $598800 of liabilities. The fair value of Martinez's assets when acquired were as follows: Current assets $1077840 Noncurrent assets 2514960 $3592800 How should the $798400 difference between the fair value of the net assets acquired ($2994000) and the cost ($2195600) be accounted for by Carla Vista? O The $798400 difference should be recognized as a gain. O The current assets should be recorded at $1077840 and the noncurrent assets should be recorded at $1716560.. O The $798400 difference should be credited to retained earnings. O A deferred credit of $798400 should be set'up and then amortized to income over a period not to exceed forty years.
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity
Section: Chapter Questions
Problem 37RQSC
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Transcribed Image Text:During 2021, Carla Vista Company purchased the net assets of Martinez Corporation for $2195600. On the date of the transaction,
Martinez had $598800 of liabilities. The fair value of Martinez's assets when acquired were as follows:
Current assets
$1077840
Noncurrent assets
2514960
$3592800
How should the $798400 difference between the fair value of the net assets acquired ($2994000) and the cost ($2195600) be
accounted for by Carla Vista?
O The $798400 difference should be recognized as a gain.
O The current assets should be recorded at $1077840 and the noncurrent assets should be recorded at $1716560..
O The $798400 difference should be credited to retained earnings.
O A deferred credit of $798400 should be set up and then amortized to income over a period not to exceed forty years.
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