Purchase accounting requires that
A) The excess amount paid for the target firm be recorded as an intangible asset on the books of the acquirer and immediately written off
B) Target firm assets must be recorded on the acquirer's balance sheet at their fair market value
C) The excess of the purchase price of the purchase price of the target firm must be recorded as asset and expensed over a period of 10 years
D) Goodwill once established is never written off
E) Target firm liabilities are recorded on the balance sheet of the acquirer at their book value

Question

Quizplus · Accepted Answer

Purchase accounting requires that the target firm assets be recorded on the acquirer's balance sheet at their fair market value. This means that the assets that were acquired should be recorded based on their current market value rather than their book value. This is because the acquirer is paying a premium on the target firm and should therefore reflect this in the accounting treatment.

Purchase Accounting Requires That