Question

Martinez corporation purchased tamarisk company 3 years ago and at that time recorded goodwill of $430,000. The tamarisk division's net assets, including the goodwill, have a carrying amount of $850,000. The fair value of the division is estimated to be $796,000. Prepare Martinez's journal entry, if necessary, to record impairment of the goodwill.

Answer 1

To record the impairment of goodwill, Martinez Corporation needs to make a journal entry. The entry will involve debiting Goodwill Impairment Expense and crediting Accumulated Impairment Loss - Goodwill. Goodwill is impaired when its carrying amount exceeds its fair value.

Step-by-step explanation:

To record the impairment of goodwill, Martinez Corporation will need to make a journal entry. Goodwill is considered impaired when its carrying amount exceeds its fair value. In this case, the fair value of the Tamarisk division is estimated to be $796,000, which is less than the carrying amount of $850,000.

The journal entry to record the impairment of goodwill would be as follows:

1. Debit: Goodwill Impairment Expense - $34,000
2. Credit: Accumulated Impairment Loss - Goodwill - $34,000

The debit to Goodwill Impairment Expense represents the recognition of the impairment loss, while the credit to Accumulated Impairment Loss - Goodwill reduces the carrying amount of the goodwill on the balance sheet.