Pls show the step by step! Use the information below for the following three questions: Bauer...
Pls show the step by step!
Use the information below for the following three questions:
Bauer Co. had a merger and recorded goodwill $500,000 two years ago. Two years later, on December 31, 2019, Bauer Co. performs a routine goodwill impairment test.
Q1. if BauerCo. finds that the fair value of the acquired division is $4,100,000 and the carrying value is $4,075,000, including goodwill on 12/31/2019. what is the ending balance of goodwill after the accounting adjustment for 2019?
Q2. if BauerCo. finds that the fair value of the acquired division is $3,885,000 and the carrying value is $4,075,000, including goodwill on 12/31/2019. what is the ending balance of goodwill after the accounting adjustment for 2019?
Q3. if BauerCo. finds that the fair value of the acquired division is $3,085,000 and the carrying value is $4,075,000, including goodwill on 12/31/2019. what is the ending balance of goodwill after the accounting adjustment for 2019?
Homework Answers
Answer 1) Year Ending Fair Value of Division = $ 4,100,000
Carrying Value = $ $4,075,000
Their will be no impact on goodwil in the said case as Fair Value is greater than carrying amount. Infact, if the company is following revaulation model then it can book a gain of $ 25,000 through FVTPL or FVOCI.
Answer 2) Year Ending Fair Value of Division = $ 3,885,000
Carrying Value = $ $4,075,000
Since the fair value is less than carrying value it means that we need to book impairement loss in our books. This impairement loss will be booked by reducing the value of goodwill.
Impairement loss = $ 4,075,000 - $ 3,885,000 = $ 190,000
Journal Entry will be as follows
Impairement Loss A/c Dr. $ 190,000
To Goodwill A/C $ 190,000
The closing balance of goowill will be $ 3,10,000 in the books
Answer 2) Year Ending Fair Value of Division = $ 3,085,000
Carrying Value = $ $4,075,000
Since the fair value is less than carrying value it means that we need to book impairement loss in our books. This impairement loss will be booked by reducing the value of goodwill.
Impairement loss = $ 4,075,000 - $ 3,085,000 = $ 990,000
Journal Entry will be as follows
Impairement Loss A/c Dr. $ 990,000
To Goodwill A/C $ 500,000
To Investment in Division A/C $ 490,000
The closing balance of goowill will be NIL in the books
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