Acquisition Method Purchase Price Allocation

Medium Intercorporate Investments Acquisition Method

XYZ Corporation recently acquired ABC Incorporated in a transaction valued at $3 million. During the acquisition, XYZ Corporation identified the fair value of ABC's tangible assets at $2.2 million and its liabilities at $1 million. Additionally, ABC Incorporated had an unrecorded intangible asset with a fair value of $1 million. Under the acquisition method of accounting, XYZ must allocate the purchase price across the acquired identifiable assets and liabilities.

Which of the following statements is true regarding the allocation of the purchase price based on the acquisition method?

The excess purchase price over the fair value of identifiable net assets will be recognized as goodwill.

The entire purchase price must be allocated to tangible assets recognized on the balance sheet.

Any identifiable intangible assets should not be recognized if they are unrecorded on ABC's balance sheet.

Hint

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