Blue Box Company was purchased for $115 million 10 years ago by the Big Box Company. The assessed (market)value of assets at the time of purchase was estimated at $90 million and the additional cash paid over the purchase price was recorded as goodwill. As a result of various product defects over the years, the market value of the Blue Box acquisition dropped to $80 million. Big Box recorded the corresponding impairment loss but instead of spinning off the division, management at Big Box invested heavily this past year in quality improvement programs that resulted in an increase in the market value of the Blue Box acquisition up to $120 million. In the current year, Big Box should:

Question

Quizplus · Accepted Answer

Under accounting standards, goodwill is not adjusted for increases in the value of the acquired entity after an impairment loss. Goodwill is initially recorded at the time of acquisition and can be adjusted downward for impairment but is not written up for subsequent increases in value.

Blue Box Company Was Purchased for $115 Million 10 Years