P Company paid $500,000 for 100% of the net assets (assets less liabilities) of S Company. The current value of S Company's net assets was only $475,000. As a result of this acquisition, P Company must recognize
A)negative goodwill.
B)goodwill.
C)gain.
D)loss.

Question

Quizplus · Accepted Answer

Since P Company paid more than the current value of S Company's net assets, there is goodwill involved in the acquisition. The amount of goodwill recognized would be $25,000 ($500,000 - $475,000).

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