Question

Peter, Inc. owns 100% of The Rock Company. The book value of the Goodwill is $300,000. When Peter made its investment, The Rock had a fair value of $2,800,000. Today, the value of The Rock has fallen to $2,250,000. An appraisal of The Rock's net assets reveals a fair value of $2,075,000. How much "impairment" should Peter record related to its investment in The Rock?$550,000$175,000$725,000$125,000$ 0, Even though the fair value of The Rock has fallen, Goodwill is not yet impaired.

Answer 1

$125,000

Step-by-step explanation:

When "The Rock" was acquire, the company had a difference between market value and book value of assets for 300,000

Currently that difference is:

market value: 2,250,000

fair value: (2,075,000)

current goodwill: 175,000

the goodwill in the company's book is 300,000

the current value of the goodwill 175,000

loss on impairment (125,000)

Peter, Inc will acknowledge this loss on impairment of goodwill.