How do we calculate goodwill under U.S. GAAP? It is the reported RE on the subsidiary's...

How do we calculate goodwill under U.S. GAAP?

		It is the reported RE on the subsidiary's balance sheet.
		It is the sum of all assets and shares of stock used to purchase the subsidiary.
		It is the difference between the amount paid and the net assets of the subsidiary.
		None of these are the correct way to calculate the value of goodwill under U.S. GAAP.

When can companies capitalize most of their R&D (research and development) costs?

		When the company can show the research will lead to a feasible product.
		When the R&D costs become sufficiently material to warrant capitalization.
		When the company begins consulting a lawyer to develop a patent or copyright.
		When the company determines that R&D costs are a significant part of its mission.

Solutions

Expert Solution

Question 1:

Answer : It is the difference between the amount paid and the net assets of the subsidiary.

Reason:

Goodwill is an intangible asset. It arises when an entity acquires another entity by paying an amount which is higher than the value of its net assets. It is calculated by subtracting the fair value of net assets of the company from the total amount paid.

Thus option 3 is the correct option in the above question.

Question 2:

Answer: When the company can show the research will lead to a feasible product.

Reason:

Research expenses are expensed off to Profit and Loss statement for the year. However, development costs are capitalized once the it can be shown that such expenses will lead to development of a feasible product that can be sold in the market. A technical and commercial feasibility test is done to ensure the same. Hence option 1 is the correct option.

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ekkarill92 answered 1 year ago

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