Question

Kirby Corporation has three divisions. It purchased one division, Pritt Products, four years ago for $2 million. Unfortunately, Pritt experienced operating losses over the last three quarters. Kirby management is now reviewing the division for purposes of recognizing an impairment. The carrying value of Pritt Division’s net assets, including the associated goodwill is presented below:

Assets	Fair Value
Cash	$200,000
Accounts receivable	300,000
Inventory	700,000
PPE (net)	800,000
Goodwill	900,000
Liabilities	(500,000)
Fair value of net assets	$2,400,000

Kirby determines the fair value of Pritt Division at the time of the impairment analysis is $1,900,000.The fair value and carrying value of the assets are the same.

Write the journal entry to record any impairment loss (if any).

Date	Account	Debit	Credit

Answer 1

Solution:

Since the reasonable estimation of pritt division at the season of the impairment examination is $1,900,000 which is lower than the conveying estimation of $2,400,000, there is a impairment loss of $500,000.

Thus, a impairment loss of $500,000 should be accounted against Goodwill.

Account titles and explanation	Debit($)	Credit($)
Impairment loss A/c Dr ($2,400,000-$1,900,000)	$500,000
To Goodwill A/c		$500,000
(To record patent amortization for 2014)