In January 2019, Roosevelt Corporation acquired Stanford Company in a business acquisition. By early April 2019 (almost 3 months from the date of acquisition), the following issues came to light:

1. Roosevelt planned to retain the Stanford Company’s current CFO after the business acquisition was finalized. However, in early March, Roosevelt’s management learned that the CFO’s long-term secretary had filed a $5,000,000 lawsuit against the company alleging that the CFO had sexually harassed her for several years. The secretary had not disclosed the sexual harassment previously because the CFO had a close personal relationship with the former owners. With the change in ownership, the secretary feels free to reveal the on-going situation to the new owners and management.

In determining the goodwill from the acquisition, Roosevelt had used

• nothing for the lawsuit.

Should Roosevelt leave these numbers unchanged, or should it re-examine these valuations in light of subsequent events?

Answer rating: 100% (QA)

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