Under the purchase accounting method of reporting acquisitions:
A) The target firm's assets are recorded on the balance sheet of the acquiring firm at the same value at which they were last shown on the balance sheet of the target firm.
B) Goodwill is recorded in an amount equal to the purchase price less the estimated fair market value of the net assets acquired.
C) The assets, but not the liabilities, of the target firm are reported on the balance sheet of the acquiring firm.
D) The balance sheet of the acquiring firm is increased by an amount equal to the estimated fair market value of the net assets acquired.
E) The fixed assets of both the target firm and the acquiring firm are restated at their estimated fair market value.

Question

Quizplus · Accepted Answer

Under the purchase accounting method, goodwill is calculated as the excess of the purchase price over the fair market value of the net identifiable assets acquired.

Under the Purchase Accounting Method of Reporting Acquisitions