When a Company Purchases Another Company That Has Existing Goodwill

question 14

Multiple Choice

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.

Identify the legal processes involved in the formation, operation, and management of corporations.

Understand the regulatory environment governing corporate contributions and free speech rights.

Understand the express and implied powers of corporations under state law.

Grasp the significance of corporate bylaws in governing internal management.

---

Definitions:

Straight-Line Depreciation

This method evenly allocates the cost of an asset over its useful life.

After-Tax Discount Rate

The discount rate used in capital budgeting that accounts for taxes, representing the net cost of capital after tax considerations.

Straight-Line Depreciation

A technique for spreading out the expense of a physical asset evenly over its operational lifespan.

Operating Cash Inflow

Cash generated from a company's primary business activities, excluding financing and investing flows.