Goodwill impairment commonly occurs when:

Goodwill impairment commonly occurs when:

• A. The acquirer overpaid for the seller
• B. The company expands product lines
• C. The company pays off debt
• D. The company issues new stock

Answer: (A)

Goodwill impairment happens when the amount carried on the books for goodwill no longer reflects what it could recover from the business. The most common trigger is overpaying in an acquisition. When the buyer pays more than the fair value of the identifiable net assets, goodwill is recorded for the excess. If the acquired business then underperforms or the anticipated benefits (like synergies) don’t materialize, the future cash flows expected from that goodwill may be lower than what’s already recorded. That drop in recoverable amount means the goodwill is impaired, and a loss is recognized to reduce the goodwill balance to its recoverable amount. The other actions listed don’t directly cause goodwill impairment. Expanding product lines, paying off debt, or issuing new stock affect operations or capital structure but don’t by themselves create an impaired goodwill balance.

Goodwill impairment happens when the amount carried on the books for goodwill no longer reflects what it could recover from the business. The most common trigger is overpaying in an acquisition. When the buyer pays more than the fair value of the identifiable net assets, goodwill is recorded for the excess. If the acquired business then underperforms or the anticipated benefits (like synergies) don’t materialize, the future cash flows expected from that goodwill may be lower than what’s already recorded. That drop in recoverable amount means the goodwill is impaired, and a loss is recognized to reduce the goodwill balance to its recoverable amount.

The other actions listed don’t directly cause goodwill impairment. Expanding product lines, paying off debt, or issuing new stock affect operations or capital structure but don’t by themselves create an impaired goodwill balance.