Question

Following its acquisition of the net assets of Dan Company, Empire Company assigned goodwill of $60,000 to one of the reporting divisions. Information for this division follows:

Carrying Amount Fair Value
Cash $20,000 $20,000
Inventory 35,000 40,000
Equip 125,000 160,000
Goodwill 60,000
A/P 30,000 30,000

Based on the preceding information, what amount of amount of goodwill impairment will be recognized for this division if its fair value is determined to be $245,000?
A) $0
B) $5,000
C) $60,000
D) $55,000

Answer 1

If the fair value of the reporting division is determined to be $245,000, the amount of goodwill impairment recognized will be $5,000.

Step-by-step explanation:

If the fair value of the reporting division is determined to be $245,000, we can calculate the impairment loss on goodwill by subtracting the fair value of all other assets from the carrying amount of the reporting division. In this case, the carrying amount of the reporting division is the sum of the carrying amounts of all assets, which is $20,000 + $40,000 + $160,000 + $60,000 + $30,000 = $310,000. Subtracting the fair value of other assets, $310,000 - $245,000 = $65,000. Since this is a loss and not a gain, the correct answer is B) $5,000.