Under the acquisition method, when the fair value of net assets is higher than the consideration...

Under the acquisition method, when the fair value of net assets is higher than the consideration transferred, then the following entry is recorded?

A. Credit to goodwill

B. Debit to goodwill

C. Credit to gain on bargain purchase

D. Debit to gain on bargain purchase

E. Long term assets of acquired company are reduced

Expert Solution

Option (C) is correct.

When the fair value of net assets is higher than the consideration transferred, then a credit to gain on bargain purchase is recorded because, we have given lesser amount (i.e. consideration, may be cash or any other thing) for what we have acquired (i.e. net assets). So, it is a gain and gain is reported in credit amounts.On the other hand, when the net assets is lower than the consideration transferred than there will be a debit to goodwill.

ekkarill92 answered 2 years ago

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