Zak Company and Clark Company were combined in a purchase transaction. Zak Company was able to acquire Clark at a bargain price. The fair market value of Clark's net assets exceed the price paid by Zak to acquire the company. Proper accounting treatment by Zak is to report the excess of fair value over purchase price as...(a)A gain.(b)A loss.(c)A liability.(d)Paid-in capital.

Question

02-08-2019
Business

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Zak Company and Clark Company were combined in a purchase transaction. Zak Company was able to acquire Clark at a bargain price. The fair market value of Clark's net assets exceed the price paid by Zak to acquire the company. Proper accounting treatment by Zak is to report the excess of fair value over purchase price as...(a)A gain.(b)A loss.(c)A liability.(d)Paid-in capital.

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andromache andromache · Answer 1 · 2019-08-07T08:38:42+02:00

Answer:

The correct option is a. A Gain

Explanation:

Fair Market Value : A fair market value is that value in which both buyer and seller are agree to sell the product at agreed value.

Purchase Price : The purchase price is the original price in which the product is purchased. It is the purchase value of the product.

Since in the question, the net assets value is higher than the price paid ,due to which it increase the liquidity and solvency of the company which will automatically become a gain for a company.

As the assets value is excess than the purchase price, the company earns a high profits.

Hence, The accounting treatment by Zak is to report the excess of fair value over purchase price as a gain.

Thus, The correct option is a. A Gain