Under the purchase accounting method,
A)goodwill must be amortized straight-line over the target firm's estimated life.
B)acquired assets are recorded based on their target firms' book values.
C)goodwill always remains on the acquirer's books at its original value.
D)goodwill will generally be a long-term liability on the acquirer's books.
E)acquired assets are recorded at fair market value.

Question

Quizplus · Accepted Answer

Under the purchase accounting method, acquired assets are recorded at fair market value. This means that the acquirer records the assets and liabilities of the target company at their fair market values at the time of acquisition, rather than their book values. Goodwill is also recorded as the excess of the purchase price over the fair market value of the net assets acquired. Goodwill is not amortized, but instead is tested for impairment annually or more frequently if events or circumstances indicate that it may be impaired.

Under the Purchase Accounting Method