When a company purchases another company that has existing goodwill and the transaction is accounted for as a stock acquisition, the goodwill should be treated in the following manner.
A) Goodwill on the books of an acquired company should be disregarded.
B) Goodwill is recorded prior to recording fixed assets.
C) Goodwill is not recorded until all assets are stated at full fair value.
D) Goodwill is treated consistent with other tangible assets.

Question

Quizplus · Accepted Answer

According to the accounting standards, goodwill should only be recorded when all assets of the acquired company are stated at full fair value. This is because goodwill represents the amount paid in excess of the fair value of net assets acquired, and it cannot be determined until all the assets are stated at fair value. Therefore, option C is the correct choice. Options A, B and D are incorrect as they do not follow the accounting standards for recording goodwill in a stock acquisition.

When a Company Purchases Another Company That Has Existing Goodwill