For Financial Statement Purposes, Goodwill Created by an Acquisition

question 77

Multiple Choice

For financial statement purposes, goodwill created by an acquisition:

• A) must be amortized on a straight-line basis over 10 years.
• B) must be reviewed each year and amortized to the extent that it has lost value.
• C) is expensed evenly over a 20-year period.
• D) never affects the profits of the acquiring firm.
• E) is recorded in an amount equal to the fair market value of the assets of the target firm.

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Definitions:

Beta

A measure of a security's volatility in relation to the market, indicating its relative riskiness.

Arbitrage Pricing Theory

A theory that describes how the price of assets or securities is determined through the relationship to several risk factors or theoretical market indices.

Stephen Ross

An influential economist and finance professor known for his work in developing the Arbitrage Pricing Theory and other significant contributions to finance.

Security Market Line

A graphical representation of the expected return of investments as a function of their risk, depicting the relationship between the risk and the expected return of the market.