Under the purchase accounting method, A. goodwill must be amortized straight-line over the target firm's estimated life. B. acquired assets are recorded based on their target firms' book values. C. goodwill always remains on the acquirer's books at its original value. D. goodwill will generally be a long-term liability on the acquirer's books. E. acquired assets are recorded at fair market value.

Question

Brittany Flynn

Business

25 March, 13:00

Under the purchase accounting method, A. goodwill must be amortized straight-line over the target firm's estimated life. B. acquired assets are recorded based on their target firms' book values. C. goodwill always remains on the acquirer's books at its original value. D. goodwill will generally be a long-term liability on the acquirer's books. E. acquired assets are recorded at fair market value.

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Fiona Clark · Answer 1

Answer: E. acquired assets are recorded at fair market value

Explanation: acquired assets are recorded at fair market value under the purchase accounting method. The method is used for mergers or combination in which one firm is considered to have acquired the assets of the other firm. It allows the purchase of a company to be made on the balance sheet of the company that acquires it at a price that reflects their fair market value. The target firm is treated as an investment and there is no pooling of assets. Supposing price paid for the purchased firm is more than its market value (of the acquired firm's assets) the difference is recorded as goodwill (a category for intangible assets that are harder to parse out individually or measured directly) on the acquirer's balance sheet.