Pearson Company acquired Sunview Company at an acquisition cost that was $20 million greater than the fair value of identifiable net assets acquired. Pearson assigned a fair value of $1,000,000 to Sunview's land. Ten months later, Pearson obtained information that the land was worth $4,000,000 at the date of acquisition.
How does Pearson account for this value change?

Question

Quizplus · Accepted Answer

Pearson should reduce goodwill by $3,000,000 because the initial overpayment was due to undervaluing the land. Adjusting the land's value reduces the excess paid, thus reducing goodwill.

Pearson Company Acquired Sunview Company at an Acquisition Cost That