Final answer:
Under GAAP, goodwill is not amortized each year; it is tested for impairment annually and could be written down as a loss if it is found to be losing value.
Step-by-step explanation:
Goodwill in accounting, under the Generally Accepted Accounting Principles (GAAP), is an intangible asset that represents the excess of the purchase price over the fair market value of identifiable assets and liabilities when a company is bought over its book value. Once recorded, goodwill is not amortized every year. Instead, it is tested annually for impairment. If, during the impairment test, the carrying value of goodwill is found to exceed its fair value, then it is written down to its fair value, which is recorded as a loss. This process reflects the goodwill losing value.
Therefore, the correct answer to the question is that goodwill is not amortized annually like other intangible assets. Instead, it is subject to an annual impairment test and may lead to a loss if there is evidence that the goodwill is losing value. It does not get amortized or recorded as a gaining value.