Brad Corporation acquired Lail Incorporated. As part of the acquisition, Brad records goodwill of $4,000,000. Brad estimates that this goodwill can be attributed to acquisition of trained employees ($800,000), loyal customers ($1,200,000), company location ($500,000), and synergies with Brad’s existing operations ($1,500,000). Brad expects these benefits to be realized over the next 10 years. At the end of the first year, management calculates amortization of the goodwill to be $400,000 ($4,000,000 ÷ 10 years). Which of the following statements is correct?
Multiple Choice
Management should not amortize any goodwill.
Management should calculate amortization based only on company location and synergies with existing operations.
Management should calculate amortization based only on the value of trained employees and loyal customers.
Management’s calculation is correct.