Question

The fair value of net identifiable assets of a reporting unit of X Company is $300,000. On X Company's books, the carrying value of this reporting unit's net assets is $350,000, which includes $60,000 of goodwill. If the fair value of the reporting unit as a whole is $335,000, what amount of goodwill impairment will be recognized for this unit?

A) $0
B) $15,000
C) $25,000
D) $35,000

Answer 1

The amount of goodwill impairment for a reporting unit of X Company will be recognized as $0 because the fair value of the reporting unit exceeds the carrying value of its net assets excluding goodwill.

Step-by-step explanation:

The question asks us to calculate the amount of goodwill impairment for a reporting unit of X Company. To find this, we compare the fair value of the reporting unit as a whole, which is given as $335,000, to the carrying value of the net assets on the books, excluding goodwill. The carrying value of the net assets excluding goodwill is $350,000 minus the $60,000 of goodwill, equaling $290,000. Since the fair value of the reporting unit ($335,000) is greater than the carrying value of the net assets excluding goodwill, there is no impairment. If there were an impairment, it would be equal to the excess of the carrying amount of the goodwill over the implied fair value of goodwill, but since the fair value of the reporting unit exceeds the carrying value, goodwill impairment is $0. Hence, the correct answer is A) $0.