The acquiring company records goodwill equal to the purchase price less the book value of the net assets acquired.
The acquiring company records goodwill equal to the purchase price less the fair value of the net assets acquired.

Question

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Goodwill is recorded as the excess of the purchase price over the fair value of the net assets acquired, not their book value. This is in accordance with the accounting principle of purchase accounting, which requires that assets and liabilities be recorded at their fair values on the acquiring company's balance sheet after the acquisition.

The Acquiring Company Records Goodwill Equal to the Purchase Price