Which of the following statements about accounting for goodwill under GAAP is correct?
A) Usually, goodwill is recognized each year by profitable companies, based on estimates of the value of their reputation and customer loyalty.
B) Goodwill is typically recorded based on an appraisal report on goodwill.
C) Goodwill is recorded when a company buys another, and the value of the goodwill equals the difference between the purchase price and the value of the identifiable assets and liabilities purchased.
D) Once recorded, goodwill is never checked for impairment.

Question

Quizplus · Accepted Answer

Under GAAP, goodwill is recorded when a company purchases another, and the value of the goodwill equals the difference between the purchase price and the value of the identifiable assets and liabilities purchased. Additionally, GAAP requires that goodwill be evaluated for impairment annually or as events occur that could indicate a potential loss in value. Option A is incorrect because goodwill is not recognized each year based on estimates of reputation and customer loyalty. Option B is incorrect because an appraisal report may be used as evidence to support the recorded value of goodwill, but it is not the only basis for recognizing goodwill. Finally, option D is incorrect because GAAP requires that goodwill be evaluated for impairment regularly.

Which of the Following Statements About Accounting for Goodwill Under