Following an acquisition, the acquiring firm's balance sheet shows an asset labeled
"goodwill." What form of merger accounting is being used?

Question

Quizplus · Accepted Answer

When the acquiring firm's balance sheet shows an asset labeled "goodwill," it indicates that the purchase method of accounting is being used. This is because under the purchase method, any excess amount paid over the fair value of identifiable assets and liabilities (i.e. goodwill) is recorded as an asset on the acquirer's balance sheet. Consolidation accounting is used when the acquired company is fully absorbed into the acquiring company, and aggregation accounting is not a recognized term in accounting.

Following an Acquisition, the Acquiring Firm's Balance Sheet Shows an Asset