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Cost exceeds book value

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17. In a purchase transaction where cost exceeds book value, which statement is true?
A) Net assets of the acquired company are revalued to their fair market values and any excess of cost over fair market value is allocated to goodwill.
B) Net assets of the acquired company are maintained at book value and any excess of cost over book value is allocated to goodwill.
C) Assets are revalued to their fair market values. Liabilities are maintained at book values. Any excess is allocated to goodwill.
D) Long-term assets are revalued to their fair market values. Any excess is allocated to goodwill.

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Solution Summary

The solution examines the correct treatment where cost exceeds book value.

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The correct answer is (A). This is as per the FASB which determines the ...

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