As it applies to an acquisition,the term goodwill is defined as the difference at the time of acquisition between the:
A)purchase price and the book value of a target firm.
B)purchase price and the estimated fair market value of the net assets acquired.
C)fair market value of the net assets acquired and the target firm's equity.
D)market value and the book value of a target firm.
E)market value and book value of the target firm's total assets.

Question

Quizplus · Accepted Answer

Goodwill is the difference between the purchase price and the estimated fair market value of the net assets acquired. It represents the intangible value that is not readily identifiable and separately valued in the acquisition. Choice A is incorrect because book value is based on historical costs and does not reflect the current fair market value. Choice C is incorrect because the fair market value of the net assets acquired is already taken into account in calculating goodwill, so it cannot be part of the calculation. Choice D and E are incorrect because market value is not used in the calculation of goodwill.

As It Applies to an Acquisition,the Term Goodwill Is Defined