On January 1, Year 1, East Company purchased West Company. East Company paid $60
ID: 2563671 • Letter: O
Question
On January 1, Year 1, East Company purchased West Company. East Company paid $600,000 cash and assumed all of West Company’s liabilities. West’s books showed tangible assets of $550,000, liabilities of $40,000,and equity of $590,000. An appraiser assessed the fair market value of the tangible assets at $580,000 at the date of acquisition. On December 31, Year 4 East determines that the goodwill suffered a $25,000 permanent impairment. However, on December 31, Year 6 East estimated that it had recovered $5,000 of the impairment that had previously been considered to be a permanent impairment. Based on this information, the book value of the goodwill shown on the December 31, Year 6 balance sheet is $35,000. $40,000. $60,000. $85,000
Explanation / Answer
Goodwill at the time of acquisition 60000 =600000-(580000-40000) Less: Permanent impairment -25000 Book value of the goodwill on December 31, Year 6 35000 Option 1 is correct