Question

Quiche Tell, Inc. has discovered that its goodwill has been impaired because the secret recipe it received when it purchased its competitor is no longer a secret. Recording this impairment will ____________.

Answer 1

Recording the impairment of goodwill involves recognizing a decrease in the value of the company's intangible asset due to the loss of a secret recipe. Quiche Tell, Inc. should determine the fair value of goodwill and compare it to the carrying value to calculate the impairment loss.

Step-by-step explanation:

Recording the impairment of goodwill due to the loss of a secret recipe involves recognizing a decrease in the value of the company's intangible asset on the balance sheet. Goodwill is considered an intangible asset that represents the value of the company's reputation and customer relationships. When the secret recipe is no longer a secret, it diminishes the competitive advantage and value of goodwill.

To record the impairment, Quiche Tell, Inc. should first determine the fair value of the goodwill and compare it to the carrying value. If the fair value is less than the carrying value, an impairment loss must be recognized. The impairment loss is calculated as the difference between the carrying value and the fair value and is recorded as an expense on the income statement, reducing the company's net income and total assets.

For example, if the carrying value of the goodwill is $500,000 and the fair value is determined to be $400,000, an impairment loss of $100,000 would be recorded. Quiche Tell, Inc. would debit the impairment loss expense account and credit the goodwill account to reduce its value on the balance sheet.