In March 2020, Dayton lost a lawsuit about infringement of patent, and paid $100,000 in damages to its competitor, Expose Company. Immediately after the lawsuit, Dayton negotiated an agreement with Expose Company. This agreement cost an additional $1.3 million, but it allowed Dayton to continue to use the patent. Dayton’s accountant, Mary Lee, initially recorded the cash payments as "Loss from Lawsuit" and "Patent" respectively. However, Jack Tam, the financial controller, instructed Mary to charge both costs to goodwill. "We are protected from another lawsuit as long as this agreement is in effect," he says. "This is like the goodwill we can ever get from our competitors like Expose. We might as well amortize the cost rather than deduct the full amount from income in 2020. Alternatively, we may include these in goodwill and then sell the goodwill later this year to recover the money."

Discuss the technical, and also ethical, issues in what Jack Tam proposed.

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Goodwill represents the difference between the cost to purchase a business and FMV of all the tangib... View the full answer