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I have been looking at this and am wondering, how do you know whether to recognize goodwill or extraordinary gain? In the first example in the answer explanation, goodwill is recognized after an acquisition if FV > acquisition price. In the second example, an extraordinary gain is recognized after an acquisition.
Company J acquired all of the outstanding common stock of Company K in exchange for cash. The acquiÂsition price exceeds the fair value of net assets acquired. How should Company J determine the amounts to be reported for the plant and equipment and long-term debt acquired from Company K?
A. Plant and equipment, K’s carrying amount; Long-term debt, K’s carrying amount
B. Plant and equipment, K’s carrying amount; Long-term debt, fair value
C. Plant and equipment, fair value; Long-term debt, K’s carrying amount
D. Plant and equipment, fair value; Long-term debt, fair value
Answer D. This must be accounted for under the acquisition method. Assets and liabilities are recorded at fair value. Any excess of acquisition price over fair value is recorded as goodwill.
n a business combination, the appraised values of the identifiable assets acquired exceeded the acquisition price. The combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). How should the excess appraised value be reported?
A. As negative goodwill
B. As additional paid-in capital
C. As an extraordinary gain
D. As positive goodwill
Answer C. Under FASB ASC 805-30-30-1, the excess of the net value of the identifiable assets acquired over the acquisition price is accounted for as an extraordinary gain.
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