Asked by Iliana Napoles on May 21, 2024
Verified
What adjustment should be made to the consolidated financial statements for the year ended December 31, 20X6, for the fair value increment related to the capital assets?
A) The retained earnings at January 1, 20X6, will be increased by $20,000.
B) Amortization expense on the capital assets for 20X6 will be increased by $2,500.
C) Amortization expense on the capital assets for 20X6 will be increased by $7,500.
D) Retained earnings at the end of 20X6 will be increased by $12,500.
Fair Value Increment
The increase in the fair value of an asset over its previous book value, often recognized in the course of business combinations or revaluations.
Capital Assets
Long-term assets acquired or owned by a company that are used in its operations to generate income.
Consolidated Financial Statements
Financial statements that show the financial position, results of operations, and cash flows of a parent company and its subsidiaries as a single economic entity.
- Gain insight into the application of fair value adjustments following an acquisition and their subsequent amortization.
Verified Answer
ZA
Zachary AndersonMay 26, 2024
Final Answer :
B
Explanation :
The fair value increment related to the capital assets is $20,000, which should be amortized over their remaining useful life of eight years. This results in an annual amortization expense of $2,500 ($20,000 / 8 years).
Learning Objectives
- Gain insight into the application of fair value adjustments following an acquisition and their subsequent amortization.