Question

Morgan Company acquires all of the outstanding shares of Jennings, Inc., for cash. Morgan transfers consideration more than the fair value of the companyâs net assets. How should the payment in excess of fair value be accounted for in the consolidation process?

Answer 1

Answer:

The excess amount paid should be recognized as Goodwill.

Explanation:

Goodwill is the excess amount over net assets of the investee company, paid by investor to the shareholders of the investee company.

Goodwill is calculated as value paid to acquirer less fair value of net assets (fair value of assets minus fair value of liabilities).