What should occur to the goodwill balance of Calcu-Corp upon its acquisition by Adding Machine Company?

What should occur to the goodwill balance of Calcu-Corp upon its acquisition by Adding Machine Company?

• A. It should be re-evaluated for fair value
• B. It should be written off completely
• C. It should be retained as is
• D. It should be increased based on the purchase price

Answer: (B)

Upon the acquisition of Calcu-Corp by Adding Machine Company, the treatment of goodwill is influenced by the accounting principles governing mergers and acquisitions. When a company is acquired, the goodwill balance—representing the excess of purchase price over the fair value of identifiable net assets—is generally reassessed. When an acquisition occurs, the previous goodwill of the acquired company is typically re-evaluated at fair value as part of the acquisition accounting process. The correct procedure would be to recognize any existing goodwill based on its fair value at the date of acquisition. Considering this, the goodwill balance should not be written off completely, as that would ignore any value that could be retained. Similarly, retaining the goodwill as is would fail to account for the potential adjustments needed reflecting the acquisition's fair value analysis. Although one might think that goodwill could increase based on the purchase price, this would miss the crucial step where the existing goodwill is assessed against the purchase price of the acquired firm, rather than automatically increasing it. Thus, the most suitable answer would involve a re-evaluation of the goodwill to ensure accurate financial representation, aligning with accounting guidelines concerning business combinations. This process facilitates a better understanding of the acquired firm's performance after the merger.

Upon the acquisition of Calcu-Corp by Adding Machine Company, the treatment of goodwill is influenced by the accounting principles governing mergers and acquisitions. When a company is acquired, the goodwill balance—representing the excess of purchase price over the fair value of identifiable net assets—is generally reassessed.

When an acquisition occurs, the previous goodwill of the acquired company is typically re-evaluated at fair value as part of the acquisition accounting process. The correct procedure would be to recognize any existing goodwill based on its fair value at the date of acquisition.

Considering this, the goodwill balance should not be written off completely, as that would ignore any value that could be retained. Similarly, retaining the goodwill as is would fail to account for the potential adjustments needed reflecting the acquisition's fair value analysis. Although one might think that goodwill could increase based on the purchase price, this would miss the crucial step where the existing goodwill is assessed against the purchase price of the acquired firm, rather than automatically increasing it.

Thus, the most suitable answer would involve a re-evaluation of the goodwill to ensure accurate financial representation, aligning with accounting guidelines concerning business combinations. This process facilitates a better understanding of the acquired firm's performance after the merger.