I am presently reading the second edition of Security Analysis by Benjamin Graham. In chapter 29, "The Dividend Factor in Common-Stock Analysis", to illustrate the relationship between dividend policy and overcapitalization Graham discusses the example of Woolworth's initial common stock offering.
In the original sale of F. W. Woolworth Company shares to the public, made in 1911, the company issued preferred stock to represent all the tangible assets and common stock to represent the good-will. The balance sheet accordingly carried a good-will item of $50,000,000 among the assets, offsetting a corresponding liability for 500,000 shares of common, par $100. As Woolworth prospered, a large surplus was built up out of earnings, and amounts were charged against this surplus to reduce the good-will account, until finally it was written down to $1.
I don't understand the last sentence of the excerpt above. Why would Woolworth's wish to write the goodwill down to $1, and how could this be accomplished by making charges against the surplus it accumulated in its first years of operation? Additionally, doesn't goodwill only appear on a company income account through the acquisition of another company?