Final answer:
Goodwill is indeed impaired, as the implied fair value of the goodwill ($350,000) is less than its carrying amount ($840,000), resulting in an impairment loss of $490,000.
Step-by-step explanation:
When assessing whether goodwill is impaired, we need to compare the carrying amount, which includes goodwill, to the fair value of the subsidiary. The carrying amount in this scenario is the equity investment account balance of $8,785,000, and this includes $840,000 of goodwill. To determine whether impairment has occurred, we compare the carrying amount with the fair value of the subsidiary, which is $7,875,000.
If the fair value of the subsidiary is less than the carrying amount, then there is an indication that goodwill might be impaired. To measure the impairment loss, if any, we need to deduct the fair value of the subsidiary's identifiable net assets from its fair value, which equals the implied fair value of the goodwill. Here, the fair value of the subsidiary's identifiable net assets is $7,525,000. Thus, the implied fair value of goodwill is the difference between the fair value of the subsidiary ($7,875,000) and the fair value of its identifiable net assets ($7,525,000), which equals $350,000.
Since the carrying amount of the goodwill is $840,000 and the implied fair value is just $350,000, the goodwill is indeed impaired. The impairment amount is calculated by subtracting the implied fair value of the goodwill from the carrying amount: $840,000 - $350,000 = $490,000.
Therefore, we can conclude that there is a goodwill impairment of $490,000 that needs to be recognized in accordance with the equity method of accounting.