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Purchase Transaction (Cost and Fair Market Value)

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18. In a purchase transaction where cost is less than fair market value, which statement is true?
A) Negative goodwill is recorded.
B) A deferred credit is recorded.
C) Long-term assets of the acquired company are reduced in proportion to their fair market values. Any excess is recorded as a deferred credit.
D) Long-term assets of the acquired company are reduced in proportion to their fair market values. Any excess is recorded as an extraordinary gain.
E) Long-term assets and liabilities of the acquired company are reduced in proportion to their fair market values. Any excess is recorded as an extraordinary gain.

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The solution discusses the situation for a purchase transaction.

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