Reference no: EM132807131

Problem 1: Gumdrop spent $2 million in 2020 on a customer service course for all of its employees, and the customer reviews went up from a 3 star average to a 4.5 star average. Gumdrop capitalizes this expenditure of $2 million since the expenditure has improved the brand equity of the firm. Are they acting in accordance of US GAAP? Why or why not?

A. Yes. They must capitalize this expenditure as an advertising asset as it improves the public perception of the brand.

B. Yes. They must capitalize this expenditure as goodwill because brand equity is associated with future revenues.

C. No. They must reognize this expenditure as an advertising expense since they do not have quantitative data that shows that future revenues will be increased by more than the amount spent.

D. No. They must recognize this expenditure as a training expense because goodwill cannot be internally generated.