Question

Twilight Corporation acquired End-of-the-World Products on January 1, 2014 for $6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At December 31, 2015, the End-of-the-World Products Division had a fair value of $5,440,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $4,640,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2015?

Answer 1

To determine the loss on impairment of goodwill, subtract the fair value of the goodwill from its carrying amount.

Step-by-step explanation:

To determine the loss on impairment of goodwill, we need to compare the fair value of the division with its carrying amount, which includes the goodwill.

The carrying amount of the division is calculated by subtracting the net identifiable assets from the total acquisition cost. In this case, the carrying amount is $6,400,000 - $4,640,000 = $1,760,000.

Since the fair value of the division ($5,440,000) is less than the carrying amount ($1,760,000 + $1,200,000), it indicates that the goodwill is impaired.

The loss on impairment of goodwill is calculated by subtracting the fair value of the goodwill from its carrying amount.

In this case, the carrying amount of goodwill is $1,200,000 and the fair value is $0 (since it is impaired).

Therefore, the loss on impairment of goodwill is $1,200,000 - $0 = $1,200,000.