As it applies to an acquisition,the term goodwill is defined as the difference between the
A)purchase price and the book value of the target firm.
B)purchase price and the estimated fair market value of the net assets acquired.
C)fair market value of the net assets acquired and the target firm's equity.
D)market value and the book value of the target firm.
E)market value and book value of the target firm's total assets.

Question

Quizplus · Accepted Answer

Goodwill is the excess of the purchase price over the estimated fair market value of the net assets acquired. It represents the intangible value of the acquired company that cannot be attributed to any specific asset or liability on the balance sheet. Option A refers to the accounting concept of book value, which is the value of assets minus liabilities on the balance sheet, and does not take into account the value of intangible assets. Option C is incorrect because equity is part of the net assets being acquired. Option D refers to market value, which is a broader concept that includes both tangible and intangible assets, and is not specific to goodwill. Option E refers to the book value of total assets, and does not take into account the fair market value of intangible assets.

As It Applies to an Acquisition,the Term Goodwill Is Defined