Question
Mesa Corporation purchased Kwick Company's net assets and assigned goodwill of $82,100 to Reporting Division K. The following assets and liabilities are assigned to Reporting Division K:
32,100
Determine the amount of goodwill to be reported for Division K and the amount of goodwill impairment to be recognized, if any, if Division K's fair value is determined to be a. $361,000, b. $301,000 and c. $281,000.
Carrying Amount Fair Value Cash $ 16,100 $ 16,100 Inventory 58,100 73,100 Equipment 191,000 211,000 Goodwill 82,100 Accounts Payable 32,100
32,100
Explanation / Answer
Goodwill Goodwill impairement loss (a) $ 82,100 $ - (b) $ 32,900 $ 49,200 (c) $ 12,900 $ 69,200 Carrying amount Fair value Cash $ 16,100 $ 16,100 Add: Inventory $ 58,100 $ 73,100 Add: Equipment $ 1,91,000 $ 2,11,000 Add: Goodwill $ 82,100 Less: Accounts payable $ 32,100 $ 32,100 $ 3,15,200 $ 2,68,100 (a) Fair Value $ 3,61,000 Here, the fair value of the reporting unit is greater than the carrying amount of the investment ($3,61,000 > $3,15,200) and no need arises for impairment test. Therefore, goodwill to be reported = $82,100 (b) Fair Value $ 3,01,000 Here, the fair value of the reporting unit is less than the carrying amount of the investment ($3,01,000 < $3,15,200). Goodwill to be reported = (Fair value of reporting unit - fair value of net assets). Goodwill to be reported = ($3,01,000 - $2,68,100) = $32,900 and Goodwill impairment = ($82,100 - $32,900)= $49,200 impairement loss will be reported. (c) Fair Value $ 2,81,000 Here, the fair value of the reporting unit is less than the carrying amount of the investment ($2,81,000 < $3,15,200). Goodwill to be reported = (Fair value of reporting unit - fair value of net assets). Goodwill to be reported = ($2,81,000 - $2,68,100) = $12,900 and Goodwill impairment = ($82,100 - $12,900)= $69,200 impairement loss will be reported.