Question

Subsequent changes in acquisition values: Villa Corporation reports goodwill of 10 million on acquisition of Webster Company. Six months after the acquisition, Villa learns that at the date of acquisition, Webster owed 1,000,000 to a private lender. This debt was overlooked in the original acquisition entry. How is this new information reported in the consolidated financial statements?

Answer 1

The new information is reported by reducing the goodwill and recognizing the liability for the loan.

Step-by-step explanation:

When Villa Corporation acquired Webster Company, they reported goodwill of $10 million. However, six months later, Villa discovered that Webster Company had an outstanding loan of $1 million from a private lender at the time of the acquisition, which was not included in the original entry. This new information should be reflected in the consolidated financial statements by reducing the goodwill by $1 million and recognizing the liability for the loan.

Here's how it would be recorded:

1. Decrease goodwill by $1 million
2. Recognize a liability for the loan of $1 million

The reduction in goodwill and the recognition of the new liability will correct the original oversight and provide a more accurate representation of the financial position of Villa Corporation after the acquisition of Webster Company.