# You are an accounting student at your local university. Your brother has recently managed to save $5,000, and he would like to invest some of this money in the stock market, so he’s researching various global corporations that are listed on the stock exchange. He is reviewing a company that has “Goodwill” as an item on the balance sheet. He is quite perplexed about what this means, so he asks you for help, knowing that you are taking accounting classes. How would you explain the concept of goodwill to him by comparing it to other types of resources the company has available? FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 #### Solutions Chapter Section FindFindarrow_forward ### Principles of Accounting Volume 1 19th Edition OpenStax Publisher: OpenStax College ISBN: 9781947172685 Chapter 11, Problem 1TP Textbook Problem 1 views ## You are an accounting student at your local university. Your brother has recently managed to save$5,000, and he would like to invest some of this money in the stock market, so he’s researching various global corporations that are listed on the stock exchange. He is reviewing a company that has “Goodwill” as an item on the balance sheet. He is quite perplexed about what this means, so he asks you for help, knowing that you are taking accounting classes. How would you explain the concept of goodwill to him by comparing it to other types of resources the company has available?

To determine

Introduction:

Goodwill is an intangible asset which is recorded at the time when a company purchases another company for a price higher than the net asset value of the purchased company.

To explain:

Themeaning of goodwill as compared to other type of resouces of the company.

### Explanation of Solution

Goodwill is an intangible asset it is recorded in the books when it is purchased in the case of business combinations. In case the consideration paid for a business is higher than the value of its net asset, the difference is recorded as goodwill.

For example, in case, Company A purchased Company B for $1,000,000 and the value of net assets of Company B is$900,000, then in this case $100,000 ($1,000,000$900,000) would be recorded as goodwill. This$100,000 represents intangible benefits expected from purchase of Company B like customer contacts

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