The fair market value of Lewis Company's net identifiable assets is $5,000,000.Martin Corporation purchases Lewis' entire business for $5,800,000.Which of the following statements is not correct?
A)Martin Corporation paid $800,000 for goodwill generated by Lewis Company.
B)Martin feels that Lewis Company has the ability to generate earnings in excess of a normal return on net identifiable assets.
C)Martin will record amortization expense over a period not to exceed 40 years.
D)Martin Corporation will record $800,000 to goodwill,an intangible asset,which will be reported in its balance sheet.

Question

Quizplus · Accepted Answer

The statement about amortization expense is incorrect because goodwill is not amortized over a fixed period of time. Instead, it is tested for impairment annually and written down if necessary.

The Fair Market Value of Lewis Company's Net Identifiable Assets