The Jessie Company acquired a competitor company in January 2015. When Jessie's accountant recorded the purchase, she correctly recorded an amount for goodwill based on the expectation of the acquired company's earning a rate of return on its assets that was in excess of the industry's rate of return. In fact, the acquired company doubled the expected rate of return in 2015 and 2016. As a result of these increased earnings, in early 2017 the president of the Jessie Company asked the company's accountant to increase the amount recognized as goodwill.
Required:
a.Define the term "goodwill." In addition, discuss several possible factors that might contribute to a company having goodwill.
b.Discuss the accounting treatment under current GAAP for goodwill that is internally developed. Discuss the rationale for this treatment.
c.Discuss the accounting treatment under current GAAP for goodwill that is acquired through an external transaction.
d.Discuss the appropriateness of the president's request to increase the recorded amount of goodwill.

Question

The Jessie Company acquired a competitor company in January 2015. When Jessie's accountant recorded the purchase, she correctly recorded an amount for goodwill based on the expectation of the acquired company's earning a rate of return on its assets that was in excess of the industry's rate of return. In fact, the acquired company doubled the expected rate of return in 2015 and 2016. As a result of these increased earnings, in early 2017 the president of the Jessie Company asked the company's accountant to increase the amount recognized as goodwill.
Required: 
a.Define the term "goodwill." In addition, discuss several possible factors that might contribute to a company having goodwill.
b.Discuss the accounting treatment under current GAAP for goodwill that is internally developed. Discuss the rationale for this treatment.
c.Discuss the accounting treatment under current GAAP for goodwill that is acquired through an external transaction.
d.Discuss the appropriateness of the president's request to increase the recorded amount of goodwill.

Quizplus · Accepted Answer

The Answer of The Jessie Company acquired a competitor company in January 2015. When Jessie's accountant recorded the purchase, she correctly recorded an amount for goodwill based on the expectation of the acquired company's earning a rate of return on its assets that was in excess of the industry's rate of return. In fact, the acquired company doubled the expected rate of return in 2015 and 2016. As a result of these increased earnings, in early 2017 the president of the Jessie Company asked the company's accountant to increase the amount recognized as goodwill.
Required: 
a.Define the term "goodwill." In addition, discuss several possible factors that might contribute to a company having goodwill.
b.Discuss the accounting treatment under current GAAP for goodwill that is internally developed. Discuss the rationale for this treatment.
c.Discuss the accounting treatment under current GAAP for goodwill that is acquired through an external transaction.
d.Discuss the appropriateness of the president's request to increase the recorded amount of goodwill.

The Jessie Company Acquired a Competitor Company in January 2015