For financial statement purposes, goodwill created by an acquisition:
A) must be amortized on a straight-line basis over 10 years.
B) must be reviewed each year and amortized to the extent that it has lost value.
C) is expensed evenly over a 20-year period.
D) never affects the profits of the acquiring firm.
E) is recorded in an amount equal to the fair market value of the assets of the target firm.

Question

Quizplus · Accepted Answer

Goodwill created by an acquisition must be reviewed annually for impairment (i.e. loss of value). If impairment has occurred, the impairment loss must be recognized and the goodwill value reduced accordingly. The remaining goodwill value is then amortized over its useful life, which can be up to 10 years.

For Financial Statement Purposes, Goodwill Created by an Acquisition