Final answer:
The excess of the cost of an acquired company over the sum of the market values of its net assets is an intangible asset called goodwill.
Step-by-step explanation:
The excess of the cost of an acquired company over the sum of the market values of its net assets is an intangible asset called goodwill.
Goodwill represents the value of a company's reputation, customer base, brand recognition, and other nonphysical assets. It arises when a company is acquired for a price higher than the fair value of its identifiable net assets.
For example, if a company acquires another company for $10 million, and the fair value of the acquired company's net assets is $8 million, then the excess $2 million is recorded as goodwill on the acquiring company's balance sheet.