Question

On September 1, year 1, for $4,000,000 cash and $2,000,000 notes payable, Norbend Corporation acquired the net assets of Crisholm Company, which had a fair value of $5,496,000 on that date. Norbend's management is of the opinion that the goodwill generated has an indefinite life. During the year-end audit for year 3 after all adjusting entries have been made, the goodwill is determined to be worthless. The amount of the write-off as of December 31, year 3 should be:

a) $504,000.
b) $478,800.
c) $466,200.
d) $474,600.

Answer 1

The goodwill write-off for Norbend Corporation as of December 31, year 3 should be $504,000, which is the difference between the total purchase price and the fair value of the net assets acquired.

Step-by-step explanation:

The amount of the goodwill write-off as of December 31, year 3 should be the difference between the fair value of the net assets acquired and the total amount paid. Norbend Corporation acquired the net assets for a total of $6,000,000 ($4,000,000 in cash plus $2,000,000 in notes payable). The fair value of the net assets was $5,496,000. Therefore, the goodwill initially recognized would be $6,000,000 - $5,496,000 = $504,000. When the goodwill is determined to be worthless, Norbend would write off the entire $504,000 of goodwill.

The correct answer to the amount of write-off necessary is: a) $504,000.