A newly acquired subsidiary has pre-existing goodwill on its books. The parent company's consolidated balance sheet will:
A) treat the goodwill the same as other intangible assets of the acquired company.
B) will always show the pre-existing goodwill of the subsidiary at its book value.
C) not show any value for the subsidiary's pre-existing goodwill.
D) do an impairment test to see if any of it has been impaired.

Question

Quizplus · Accepted Answer

When a company acquires a subsidiary, the pre-existing goodwill on the subsidiary's books is not recognized in the consolidated financial statements. Instead, any goodwill recognized is calculated based on the purchase price of the subsidiary over the fair value of its net identifiable assets at the acquisition date. Pre-existing goodwill of the subsidiary is not carried over to the consolidated balance sheet.

A Newly Acquired Subsidiary Has Pre-Existing Goodwill on Its Books