On January 1, 1996, Diversified Industries purchased Specialists, Inc., for $1,800,000. The bal¬ ance sheet of Specialists, Inc., at the time of purchase follows. Assets Current assets $650,000 Long-lived assets 330,000 Total assets $980,000 Liabilities and Stockholders’ Equity Liabilities $250,000 Stockholders’ equity 730,000 Total liabilities and stockholders’ equity $980,000 The total FMV of the individual assets of Specialists is $1,350,000, and the liabilities are val¬ ued on the balance sheet at FMV. REQUIRED:

a. How can the FMV of Specialists’ assets exceed the value of the assets on the balance sheet?

b. Why would Diversified pay more for Specialists than the FMV of the assets less the lia¬ bilities?

c. Provide the journal entry to record the purchase.

d. Assume that Diversified chooses accounting methods to maximize reported net income each year. What journal entry would Diversified record on December 31, 1996, with respect to this purchase?

e. Some have argued that goodwill should be written off in the period of acquisition and not amortized to future periods. Provide an argument in support of this position.