Question #27
Reading: Reading 13 Integration of Financial Statement Analysis Techniques
PDF File: Reading 13 Integration of Financial Statement Analysis Techniques.pdf
Page: 14
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
MKF Consolidated reports $500 million in goodwill on its balance sheet. The market consensus indicates that the value of MKF's intangible assets is $300 million. How should an analyst adjust MKF's balance sheet? Reduce goodwill and:
Answer Choices:
A. increase liabilities by $200 million
B. equity by $200 million
C. equity by $500 million while increasing liabilities by $300 million
Explanation
If goodwill has no economic value apart from the firm, it should be eliminated from the
balance sheet. If the value of the intangibles can be reliably estimated they can be
substituted for accounting goodwill.