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 goodwill impairment will be recognized for this division if its fair value is determined to be $195,000?
A) $15,000
B) $30,000
C) $60,000
D) $55,000

Answer 1

The goodwill impairment recognized for the division is the difference between its carrying amount and fair value, resulting in a $15,000 impairment loss.

Step-by-step explanation:

The amount of goodwill impairment for the division is determined by comparing the division's carrying amount with its fair value. To calculate the carrying amount, we add up the carrying values of the division's assets and subtract the liabilities. Here, the carrying amount is $20,000 (Cash) + $35,000 (Inventory) + $125,000 (Equip) + $60,000 (Goodwill) - $30,000 (A/P) = $210,000. The fair value of the division is given as $195,000. Since the carrying amount exceeds the fair value, there is an impairment loss. The impairment loss is the difference between the carrying amount and the fair value, which is $210,000 - $195,000 = $15,000. Therefore, the impairment loss recognized for goodwill is $15,000, which is option A.