Test: CPA Financial Accounting and Reporting (FAR)

1.

Diego Company buys all outstanding assets and liabilities of Francisco Company on January 1, Year 3, by giving up consideration of $3.5 million. On that date, Francisco's net assets have a book value of $3 million and a fair value of $3.7 million. Which of the following statements is true?

A bargain purchase of $200,000 has occurred and will be reported immediately as a gain for consolidation purposes

Goodwill of $500,000 should be recognized and amortized

Goodwill of $500,000 should be recorded and tested annually for impairment

A bargain purchase of $200,000 has occurred and will be used to reduce the value of Francisco's long-term assets for consolidation purposes

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