In recording the acquisition cost of an entire business,
A) goodwill is recorded as the excess of cost over the fair value of net identifiable assets.
B) assets are recorded at the seller's carrying amounts.
C) goodwill, if it exists, is never recorded.
D) goodwill is recorded as the excess of cost over the carrying amount of net identifiable assets.

Question

Quizplus · Accepted Answer

Goodwill is recognized in accounting as the excess of the purchase price of a business over the fair value of its net identifiable assets. This represents intangible assets that are not separately identifiable, such as brand reputation or customer relationships. Choices B, C, and D are incorrect because assets acquired in a business combination are recorded at their fair value, not the seller's carrying amounts; goodwill is indeed recorded if it exists; and it is the excess over the fair value of net identifiable assets, not the carrying amount.

In Recording the Acquisition Cost of an Entire Business