Problem 12-4 $860,000 $580,000 2,450,000 480,000 $3,310,000 2,250,000 $3,310,000
ID: 2527760 • Letter: P
Question
Problem 12-4
$860,000
$580,000
2,450,000
480,000
$3,310,000
2,250,000
$3,310,000
$480,000
2,170,000
(700,000
)
(500,000
)
$1,450,000
Determine the impairment loss, if any, to be recorded on December 31, 2017.
Assume that fair value of the Conchita Division is $1,367,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2017.
The impairment loss$__________
Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
This loss will be reported in income as a separte line item before the subtotal _____________.
Cost of goods Sold
Extroardinary Items
Income from Continuing Operations
Income from Discontinued Operations
Attached is a list of accounts for journal entry
Accounts Payable
Accounts Receivable
Advertising Expense
Amortization Expense
Buildings
Cash
Computer Software Costs
Copyrights
Discount on Bonds Payable
Equipment
Franchises
Goodwill
Income Summary
Intangible Assets
Interest Expense
Inventory
Land
Legal Fees Expense
Loss on Impairment
Long-term Notes Payable
No Entry
Notes Payable
Organization Expense
Paid-in Capital in Excess of Par - Common Stock
Patents
Patent Expense
Prepaid Rent
Recovery of Loss from Impairment
Rent Expense
Rent Receivable
Rent Revenue
Research and Development Expense
Retained Earnings
Trade Names
Trademarks
Problem 12-4
On July 31, 2017, Cullumber Company paid $2,750,000 to acquire all of the common stock of Conchita Incorporated, which became a division of Cullumber. Conchita reported the following balance sheet at the time of the acquisition. Current assets$860,000
Current liabilities$580,000
Noncurrent assets2,450,000
Long-term liabilities480,000
Total assets$3,310,000
Stockholders’ equity2,250,000
Total liabilities and stockholders’ equity$3,310,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,475,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2017, Conchita reports the following balance sheet information. Current assets
$480,000
Noncurrent assets (including goodwill recognized in purchase)2,170,000
Current liabilities(700,000
)
Long-term liabilities(500,000
)
Net assets$1,450,000
It is determined that the fair value of the Conchita Division is $1,850,000. The recorded amount for Conchita’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value $130,000 above the carrying value.
Explanation / Answer
Compute the amount of goodwill recognized if any on july 31 2017
Amount of goodwill: Excess of cost of division over the fair value of the identifiable assets
2,750,000 - $2,475,000 = $275,000
Determine the amount of impairment loss;
No deficiency is spotted, since the price of conchita is shown to be reasonable $1,850,000 is greater than carrying cost $1,450,000
Assume fair value of the conchita divison is $1,367,000 instead of $1,850,000. determine the impairment loss
$
$
Fair value of concitha divison
1367000
Carrying value of divison
1450000
Increase in fair value
130000
Less: Goodwill
-275000
-1305000
Impaired fair value of goodwill
62000
Carrying value of goodwill
-275000
Impairment loss
-213000
(d)
Accounts and explanation
Debit
credit
Loss on impairment
213000
Goodwill
213000
$
$
Fair value of concitha divison
1367000
Carrying value of divison
1450000
Increase in fair value
130000
Less: Goodwill
-275000
-1305000
Impaired fair value of goodwill
62000
Carrying value of goodwill
-275000
Impairment loss
-213000
(d)
Accounts and explanation
Debit
credit
Loss on impairment
213000
Goodwill
213000