Question

2014, Herron Resources purchased Stinson Tile for $4.5 million. On December 31, 2020, the Stinson division reported net assets of $5,600,000 (including $1,800,000 of goodwill). Herron reviewed the Stinson division and determined that expected net future cash flows equaled $4,700,000 and the fair value is estimated to be only $3,900,000. What entry should Herron record concerning the Stinson division on December 31, 2020

Answer 1

Loss on impairment 1,700,000

Goodwill 1,700,000

Step-by-step explanation:

Herron Resources has an impairment for The Stinson division.

The Stinson division reported net assets of $5,600,000 (including $1,800,000 of goodwill) and the fair value is estimated to be only $3,900,000.

So $5,600,000 - $3,900,000 = $ 1,700,000

This is how we recognize as an impairment so we need to register the loss and the - at the Goodwill:

Loss on impairment 1,700,000

Goodwill 1,700,000