In accounting for acquisitions, which of the following best describes 'purchase accounting'?

Purchase accounting is a method used in accounting for acquisitions that involves recognizing and measuring the fair market values of the assets and liabilities acquired at the acquisition date. This approach aligns with the principles of accounting, which require the acquirer to identify the fair value of not only tangible assets like property and equipment but also intangible assets such as patents and trademarks, as well as any assumed liabilities.

This process is critical as it ensures that the financial statements accurately reflect the true value of what has been acquired and the financial obligations taken on by the acquiring entity. By establishing fair market values, the acquiring company can provide a more precise depiction of its financial position post-acquisition, which is essential for investors, analysts, and other stakeholders.

Other choices either misrepresent the process—such as recording all liabilities as contingent or ignoring intangible assets—or imply an accounting treatment that doesn't align with standard practices, such as amortizing all purchased assets immediately, which is not typically how intangible assets are treated under generally accepted accounting principles.