Quotient Enterprises acquired the assets of Limited Company
during the cur- rent financial year. The acquired assets had a fair market
value of $222 and were purchased for $1,050. At the end of the current financial
year, Quotient’s consolidated total assets (including the $222, but not
goodwill) amounted to $2,779; stockholders’ equity was $1,958. Consolidated
income for the current financial year (ignoring any potential goodwill
amortization) is $361. Quotient’s accountants are preparing the financial
statements for the current financial year and wish to know how alternative ways
to account for goodwill potentially affect the income statement and balance sheet.
Management is concerned with how certain financial ratios will “look”
to investors and financial analysts under the alternatives.

1.What are the different internationally permitted methods
of accounting for goodwill, including permitted amortization periods?

2. What are the
amounts of total assets and stockholders’ equity under each permitted
alternative? What are the income amounts under each permitted alternative?

3. Under each
alternative, what are the ratios of (a) net income to total assets and (b) net
income to stockholders’ equity?

4. Does the international diversity in accounting for
goodwill affect a company’s relative competitive advantage in making business
acquisitions? Explain.