Measurement of Goodwill in Acquisition Method

Medium Intercorporate Investments Acquisition Method

Company A has acquired 80% of Company B for a cash payment of $1,200,000. At the acquisition date, Company B had net assets (total assets less total liabilities) valued at $1,400,000. It is anticipated that Company B will generate significant synergy savings in the upcoming years due to the acquisition.

According to the acquisition method of accounting, which of the following statements is true regarding the measurement of goodwill at the acquisition date?

Goodwill is measured as the excess of the purchase price over the fair value of the identifiable net assets of Company B.

Goodwill is not recognized if the fair value of the net assets acquired exceeds the purchase price.

Goodwill is calculated as 80% of the fair value of Company B's total assets at the acquisition date.

Hint

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