According to generally accepted accounting principles,goodwill is recorded as an asset
A)when favorable factors combine to create goodwill.
B)when a company has superior earning power.
C)when it is paid for as part of the purchase of a business.
D)under no circumstances.

Question

Quizplus · Accepted Answer

Goodwill is recorded as an asset when it is paid for as part of the purchase of a business. This is because the acquiring company must pay more than the fair value of the acquired company's assets and liabilities to account for the value of its reputation, customer base, and other intangible assets that contribute to its earning power. Goodwill cannot be recorded as an asset based on favorable factors or superior earning power, as these are not measurable or objective criteria.

According to Generally Accepted Accounting Principles,goodwill Is Recorded as an Asset