Question

Using the acquisition method for a business combination, goodwill is generally defined as:

A) cost of the investment less the subsidiary's book value at the beginning of the year.
B) cost of the investment less the subsidiary's book value at the acquisition date.
C) cost of the investment less the subsidiary's fair value at the beginning of the year.
D) cost of the investment less the subsidiary's fair value at the acquisition date.
E) is no longer allowed under federal law.

Answer 1

Goodwill in the acquisition method is the difference between the investment's cost and the subsidiary's fair value at the acquisition date, making option D correct.

Step-by-step explanation:

Using the acquisition method for a business combination, goodwill is generally defined as the cost of the investment less the subsidiary's fair value at the acquisition date. Therefore, the correct answer to your question is D) cost of the investment less the subsidiary's fair value at the acquisition date.

Goodwill is a financial concept used in accounting to capture intangible assets when one company acquires another. It is not directly observable or measurable but is calculated based on the excess amount paid over the fair market value of the acquired company's net assets.