Problem 12-15 SHOW LIST OF ACCOUNTS SHOW LIST OF ACCOUNTS SHOW LIST OF ACCOUNTS
ID: 2556393 • Letter: P
Question
Problem 12-15
SHOW LIST OF ACCOUNTS
SHOW LIST OF ACCOUNTS
SHOW LIST OF ACCOUNTS
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
Problem 12-15
On July 31, 2017, Culver Company paid $3,120,000 to acquire all of the common shares of Pronghorn Incorporated, which became a division of Culver. Pronghorn reported the following balance sheet at the time of the acquisition.Pronghorn Inc.
Statement of Financial Position
As at July 31, 2017 Current assets $832,000 Current liabilities $624,000 Non-current assets 2,808,000 Long-term liabilities 520,000 Shareholders’ equity 2,496,000 Total assets $3,640,000 Total liabilities and
shareholders’ equity $3,640,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Pronghorn was $2,860,000. Over the next six 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, Pronghorn reports the following balance sheet information:
Current assets $468,000 Non-current assets (including goodwill recognized in purchase) 2,496,000 Current liabilities (728,000 ) Long-term liabilities (520,000 ) Net assets $1,716,000
It is determined that the fair value of the Pronghorn Division as at December 31, 2017, is $1,924,000. The recorded amount for Pronghorn’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value $156,000 above the carrying value. Assume that Culver follows ASPE for financial reporting purposes.
Explanation / Answer
A. Calculate the amount of goodwill recognized on July 31, 2017:-
Goodwill= Amount paid- Fair value of networth
260000=3120000-2860000
B.Determine the impairment loss, if any, to be recognized on December 31, 2017. (If an answer is zero, please enter 0. Do not leave any fields blank.)
Impairment loss= 0 (carry amount- recoverly amount)
beacause carry amount is less than recoverable amount.
C.Assume that fair value of the Pronghorn Division is $1,664,000 instead of $1,924,000. Determine the impairment loss, if any, to be recorded on December 31, 2017.
Impairment loss= 52000
for the second otion there is no journal entry.
Imapirment loss Ac-----Dr 52000
to Asset ac 52000