If a company overpays for the purchase of another company, as took place when the merger of
Question:
If a company overpays for the purchase of another company, as took place when the merger of AOL and Time-Warner took place, what steps should the auditor take to be sure the results are fairly portrayed in the financial statements?
a. Review financial analysts' reports; write the excess payment off to owner's eq- uity at the time of acquisition.
b. Increase the value of tangible assets to cover the amount of overpayment since these are amounts that were paid to acquire the assets.
c. Record the amount to goodwill, but shorten the estimated life of goodwill for amortization purposes.
d. Record the excess amount as goodwill but test goodwill for impairment an- nually.
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The most appropriate step for the auditor is to d Record the excess amount as goodwill but test good...View the full answer
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