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Advanced Roofing, Inc. and Affiliates Notes to Consolidated Financial Statements Note 1. Nature of Business and Significant Accounting Policies (Continued) Investment in construction joint venture: The Company is accounting for its 49% investment in a construction joint venture by the equity method of accounting, under which the Company's share of net income or loss (50%) of the construction joint venture is recognized as income or loss in the Company's consolidated statements of income and added to the investment account, and distributions received from the construction joint venture are treated as a reduction of the investment account (see Note 15). Advertising: The Company expenses advertising costs as incurred. Advertising costs amounted to $362,220 and $307,565 for the years ended December 31, 2015 and 2014, respectively. Income taxes: Advanced Roofing, Inc., Advanced Leasing, Inc., Advanced Green Technologies, Inc. and AGT Canada, Inc., with the consent of their stockholders, have elected to be taxed under the Internal Revenue Code as S Corporation. The members of Kornahrens Group, LLC and 2100 N.W. 21 Avenue, LLC have elected to be taxed as limited liability corporations. AGT Export, Inc. has elected to be taxed as an Interest Charge — Domestic International Sales Corporation (IC DISC). Accordingly, the stockholders and members are taxed on their proportionate share of the Company's taxable income. Therefore, no provision or liability for income taxes has been included in the consolidated financial statements for these entities. The Company has and will continue to make distributions, on a pro rata basis, at least sufficient to assist the stockholders and members in paying personal income taxes on the distributable taxable earnings of the Company. AGT Solar Investments ULC, 2224555 Ontario Limited and 2224556 Ontario Limited are subject to taxation in foreign jurisdictions. The Company recognized $545,422 and $366,362 in foreign income taxes for the years ended December 31, 2015 and 2014, respectively, which are included in other nonoperating expenses. Translation of foreign currency: The Company has determined that the functional currency of its international affiliates is the local currency of each affiliate. Therefore, the assets and liabilities denominated in the local currency are translated to the United States dollar at the rate of exchange at the balance sheet date, and the revenues and expenses denominated in the local currency are translated to the United States dollar at average rates of exchange during the period. Any foreign currency transaction gains and losses, resulting from transactions denominated in a currency different than the local currency, have been reflected as a component of the Company's results from operations and the foreign currency translation. gains and losses have been included as a component of other comprehensive loss within noncontrolling interest in the consolidated statements of changes in stockholders' equity. Business combinations: In accounting for a business combination, the purchase price paid for the acquired company is allocated to the net assets acquired based on their estimated fair values. Management estimates these fair values based upon assumptions they believe to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired company. Transaction costs are expensed as operating expenses when incurred and when the related services have been received. Goodwill: Goodwill is recognized for the excess of the fair value of an acquired entity over the amounts assigned to identifiable assets acquired and liabilities assumed in a business combination. Amortization of goodwill is recognized on a straight-line basis over a period of ten years. The Company tests its recorded goodwill for impairment upon a triggering event. Factors that could trigger an impairment test include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the overall business and significant negative industry or economic trends. Impairment of goodwill is tested using a fair -value approach at the entity level. No indications of impairment were identified during the year ended December 31, 2015. 10