Which statement about negative goodwill is true?

A) Negative goodwill is the amount by which the fair value of identifiable net assets acquired exceeds the price paid.
B) Negative goodwill results when the cash paid for a company exceeds the fair market value of the net assets acquired.
C) Negative goodwill should be recorded as a direct credit to retained earnings.
D) Negative goodwill should first be allocated proportionately to reduce the cost of all assets acquired (except long-term investments in marketable securities) on the basis of their relative market values.

Question

Claire Groves · Accepted Answer

Final Answer : A, Explanation :  Negative goodwill occurs when the fair value of the identifiable net assets acquired exceeds the price paid. This means that the acquirer paid less than the fair value of the net assets acquired, resulting in a negative amount of goodwill. This negative amount should be recorded as a gain in the acquirer's financial statements.

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