ABC Inc. purchased Catching Company on June 1, 2015 for $20,000,000 and recorded
ID: 2714475 • Letter: A
Question
ABC Inc. purchased Catching Company on June 1, 2015 for $20,000,000 and recorded goodwill of $2,000,000 in connection with the purchase. At December 31, 2015, it was determined that the fair value of the Catching Division was $17,000,000. The Catching Division’s book value of net assets (including goodwill) was $17,500,000; the fair value of Catching’s net assets (excluding goodwill) was $16,200,000. The amount of impairment loss of goodwill to be recorded on December 31, 2015 should be:
$0.
$600,000.
$1,000,000.
$1,200,000.
Explanation / Answer
correct option is "D"
Book value = $ 2,000,000
Fair value = Fair value of division - Fair value of net asset without goodwill
= 17,000,000 - 16,200,000
= $ 800,000
Impairment loss = Fair value - Book value
= 800,000 - 2,000,000
= $ - 1,200,000