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)The goodwill on the books of an acquired company should be written off.
B)Goodwill is recorded prior to recording fixed assets.
C)The fair value of the goodwill is ignored in the calculation of goodwill of the new acquisition.
D)Goodwill is treated in a manner consistent with tangible assets.

Question

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)​The goodwill on the books of an acquired company should be written off.
B)​Goodwill is recorded prior to recording fixed assets.
C)​The fair value of the goodwill is ignored in the calculation of goodwill of the new acquisition.
D)​Goodwill is treated in a manner consistent with tangible assets.

Quizplus · Accepted Answer

In a stock acquisition, the existing goodwill of the acquired company is not separately recognized. Instead, the goodwill is recalculated based on the excess of the purchase price over the fair value of the identifiable net assets acquired, including any existing goodwill.

When a Company Purchases Another Company That Has Existing Goodwill