Which Statement About Negative Goodwill Is True

question 40

Multiple Choice

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.

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Definitions:

Bad Debt Expense

An expense account that represents amounts deemed uncollectible from credit sales and highlights credit losses in financial statements.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts is a contra-asset account that reflects the estimated amount of accounts receivable which may not be collectible.

Credit Sales

Transactions in which goods or services are sold and payment is deferred, allowing customers to purchase products or services on account.

Uncollectible Accounts

Accounts receivable that are recognized as uncollectible losses due to the inability to collect from the debtor.