P Company paid $500,000 for 100% of the net assets (assets less liabilities)of S Company.The book value of S Company's net assets was only $475,000.As a result of this acquisition,what must P Company recognize?

Question

Quizplus · Accepted Answer

Since P Company paid $500,000 for net assets worth only $475,000, it means that there is $25,000 of intangible value that cannot be recognized as a specific asset or liability. This $25,000 represents goodwill which must be recognized by P Company. Therefore, the correct answer is goodwill.

P Company Paid $500,000 for 100% of the Net Assets