Question

Goodwill generated internally should be:__________

a. capitalized in the year it occurs.
b. represents the purchase price of a business that is about to be sold.
c. is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.
d. is the only account in the financial statements that is based on fair value, all other accounts are recorded at an amount other than their fair value.

Answer 1

Answer: c. is the difference between the fair value of the net tangible and identifiable intangible assets and the purchase price of the acquired business.

Step-by-step explanation:

Question is not formatted correctly as it is asking for the definition of goodwill, not goodwill generated internally.

Goodwill is the difference between the net identifiable total assets of a company and the purchase price of that same company. It is essentially a premium paid on the book value of the company and it is influenced by a number of things such as location, customer base, profit potential and others.

The company that did the buying will then incorporate this goodwill into their own books. This is why companies that have a lot of goodwill on their books have usually been involved in acquisitions.