The First Step in Estimating Goodwill in the Excess Earnings

question 32

Multiple Choice

The first step in estimating goodwill in the excess earnings approach is to:

• A) determine normal earnings.
• B) identify a normal rate of return for similar firms.
• C) compute excess earnings.
• D) estimate expected future earnings.

---

Definitions:

Year 1

Typically refers to the first year of operation or the initial year in a set period under review or analysis.

Unit Product Cost

The cost of producing one unit of a product, including direct materials, direct labor, and manufacturing overhead.

Absorption Costing

A costing approach that integrates both direct and indirect costs associated with manufacturing into the product's total cost.

Ending Inventory

The value of the goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.