Question

Question: In 2017, Ghostbusters Corp. spent $420,000 for “goodwill” visits by sales personnel to key customers. The purpose of these visits was to build a solid, friendly relationship for the future and to gain insight into the problems and needs of the companies served. How should this expenditure be reported?

Short answer

Answer

Goodwill cannot be capitalized.

Step-by-step solution

Meaning of Goodwill

Goodwill is the fraction of the purchase price that is greater than the net fair value of all the assets and liabilities sold. When a firm buys a new business, it obtains goodwill, which is an intangible asset (one that isn't tangible but has a long-term worth).

Explaining the reporting of expenditures

The expenditure that is spent on visits by sales personnel to key customers as the goodwill of $42,000 cannot be capitalized. Self-developed, self-maintained, and self-created goodwill cannot be capitalized. These costs would almost certainly be represented as selling costs.