A company acquires all of the assets and liabilities of another company. Which one of the following reduces the amount of goodwill the acquiring company reports?

Question

Quizplus · Accepted Answer

The acquired company's debt is overvalued. Goodwill is the excess of the purchase price over the fair value of the acquired company's net assets. If the acquired company's debt is overvalued, then the fair value of its net assets will be lower, which will reduce the amount of goodwill.

A Company Acquires All of the Assets and Liabilities of Another