What is goodwill? What impact does goodwill have on the firm’s balance sheet? On its income statement?

Jump to Solution
Category:

What is goodwill? What impact does goodwill have on the firm’s balance sheet? On its income statement?

0
0

What is goodwill? What impact does goodwill have on the firm’s balance sheet? On its income statement?

Explanation & AnswerSolution by a verified expert

Explanation

Goodwill is the difference between the price paid for the assets and their net asset value. It represents the gain of the target company by selling the assets at a value more than their book value.
 
Impact on the firm's balance sheet- Goodwill increases the value of common equity by the excess of market value over the book value. It appears under the intangible assets by the same amount because this excess is due to a superior sales organization or some intangible factor.
 
Impact on the firm's income statement- Goodwill is tested for impairment annually. If the fair market value of goodwill decreases, the decline in value is recorded as an expense in the Income statement. An increase in expenses leads to lower profits in the income statement.

Verified Answer

Goodwill is the difference between the price paid for the assets and their net asset value.
 
Goodwill increases the value of common equity in the liabilities section of the balance sheet and appears under the intangible assets by the same amount.
 
Goodwill is tested for impairment annually. If the fair market value of goodwill decreases, the difference is recorded as an expense in the income statement. But no income is reported if the fair market value of goodwill increases.

Purchase this answer to view it. $5
Login/Sign up for free, load your wallet instantly using PayPal or cards and purchase this solution to view it.

Looking for the solution to this or another homework question?

If you need essay writing assistance or homework solutions, log in or sign up for a free account and ask our writers any homework question.