Question

un January 1, Porter paid $550,000 to purchase all of the outstanding stock of Sam and recorded goodwill of 595,000 Complete the requirements of the following independent scenarios. Show your work Part A: At December 31, the book value of the Sam unit, including goodwill, is $700,000. The fair value of the Sam unit is $705,000. Prepare the journal entry to record the impairment loss. If no entry is required, briefly explain why in the area provided for the journal entry. Part B: At December 31, the book value of the Sam unit, including goodwill, is $725,000. The fair value of the Sam unit is $705,000 Prepare the journal entry to record the impairment loss. If no entry is required, briefly explain why in the area provided for the journal entry.

Answer 1

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Answers are highlighted in yellow: Solution: Goodwill Impairment: When carrying value is greater than fair value, potential goodwill impairment is applicable. Quantitative analysis: Fair value of reporting units, including goodwill Carrying value, including goodwill Book value in Excess over Fair value 705000 700000 A) A) No impairment require, as fair value is greater than carrying value. Quantitative analysis: Fair value of reporting units, including goodwill Carrying value, including goodwill Book value in Excess over Fair value 705000 725000 20,000 Impairment required. B) $ Format and Naming convention is not available, can be sligthly different: Credit Debit $ 20,000 Account title and explaination Impairment loss Goodwill (To record the impairment of goodwill) $ 20,000