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Unformatted text preview: without an exchange transaction that puts a value on the goodwill would lead to subjective valuations that do not contribute to the reliability of financial statements. Therefore, compa-nies record goodwill only when there is an exchange transaction that involves the purchase of an entire business. When an entire business is purchased, goodwill is the excess of cost over the fair market value of the net assets (assets less liabilities) acquired. In recording the purchase of a business, a company debits the identifiable acquired assets and credits liabilities at their fair market values, credits cash for the purchase price, and records the difference as the cost of goodwill. Goodwill is not amortized because it is considered to have an indefinite life. However, it must be written down if a company determines the value of goodwill has been permanently impaired....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.
- Spring '11
- Balance Sheet