Question

On July 31, 2020, Carla Vista Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Carla Vista. Conchita reported the following balance sheet at the time of the acquisition. Current assets $710,000 Current liabilities $600,000 Noncurrent assets 2,700,000 Long-term liabilities 500,000 Total assets $3,410,000 Stockholders’ equity 2,310,000 Total liabilities and stockholders’ equity $3,410,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,700,000. Over the next 6 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, 2020, Conchita reports the following balance sheet information. Current assets $410,000 Noncurrent assets (including goodwill recognized in purchase) 2,530,000 Current liabilities (660,000 ) Long-term liabilities (460,000 ) Net assets $1,820,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. Compute the amount of goodwill recognized, if any, on July 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.) The amount of goodwill $ enter The amount of goodwill in dollars eTextbook and Media List of Accounts Determine the impairment loss, if any, to be recorded on December 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.) The impairment loss $ enter the impairment loss in dollars eTextbook and Media List of Accounts Assume that fair value of the Conchita Division is $1,756,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.) The impairment loss $ enter The impairment loss in dollars eTextbook and Media List of Accounts Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount enter a credit amount This loss will be reported in income as a separate line item before the subtotal select an income statement item .

Answer 1

Particulars Fair value of division Less: Fair value of the identible assets Goodwill Amount $3,000,000 $2,750,000 $250,000 SO Impirement loss to be recorded will be Fair value is greater than the carrying value. Particulars Fair value of Conchita division Carrying value of division Increase in fair value of PP&E Goodwill Amount Amount $1,714,000 $1.820,000 $130,000 -$250,000 $1,700,000 $14,000 -$250,000 -$236.000 Implied fair value of goodwill Carrying value of goodwill Impairement loss Credit Debit $14.000 4) Date Accounts title and explantion Loss on impairement Goodwill To record impairment loss) $14,000