Abstract
Both the US and global accounting standards require that goodwill identified in corporate acquisitions be capitalized as an asset and evaluated for impairment in subsequent periods. The capitalization of goodwill has been debated for over a century, with both supporters and opponents making excellent arguments in defense of their views. This study proposes an approach that retains the recognition and measurement methods currently in use but reports goodwill as a contra-equity account. The financial impact of this proposal across the economy is determined by analyzing the changes in return-on-assets (ROA) and debt-to-equity (DTE) ratios of companies reported in the Compustat data base.