In a transaction accounted for using the acquisition method where consideration transferred exceeds book value of the acquired company, which statement is true for the acquiring company with regard to its investment?
A) Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is allocated to goodwill.
B) Net assets of the acquired company are maintained at book value and any excess of consideration transferred over book value of net assets acquired is allocated to goodwill.
C) Acquired assets are revalued to their fair values. Acquired liabilities are maintained at book values. Any excess is allocated to goodwill.
D) Acquired long-term assets are revalued to their fair values. Any excess is allocated to goodwill.
E) Net assets of the acquired company are revalued to their fair values and any excess of consideration transferred over fair value of net assets acquired is deducted from additional paid-in capital.

Question

Quizplus · Accepted Answer

In the acquisition method, the net assets of the acquired company are revalued to their fair values, and any excess of the consideration transferred over the fair value of the net assets acquired is recognized as goodwill.

In a Transaction Accounted for Using the Acquisition Method Where