Peanut Entity acquired Scooby Entity for $500 million. The fair value of the net assets of Scooby upon acquisition was $400 million (i.e., goodwill = $100 million). Six months after acquisition, new information comes to light that suggests that Scooby has an additional deferred tax benefit of $25 million. How should Peanut account for this discovery of information?
A) Write down goodwill by $25 million
B) Recognize a gain upon discovery of $25 million
C) Directly credit retained earnings for $25 million
D) Increase goodwill by $25 million

Question

Quizplus · Accepted Answer

The discovery of an additional deferred tax benefit of $25 million should be accounted for as a reduction in goodwill, as it reflects an adjustment to the initial acquisition accounting.

Peanut Entity Acquired Scooby Entity for $500 Million