Question

On December 31, 2012, Appalachian Corporation paid $5,550,000 to acquire Grandview Company and recorded $1,630,000 of goodwill as a result of the purchase. On December 31, 2014, Appalachian determines that the fair value of the CityGrandview division is $6,500,000 and the carrying amount of placeCityGrandview's net assets on that date is $6,200,000 (the carrying value and the fair value of identifiable net assets are the same). What amount of loss on impairment of goodwill should Appalachian record at December 31, 2014?

A. $1,630,000
B. $300,000
C. $0.
D. $1,330,000

Answer 1

Since the fair value of the City Grandview division exceeds its carrying amount, there is no impairment of goodwill and Appalachian Corporation should not record any impairment loss.

Step-by-step explanation:

To determine the loss on impairment of goodwill that Appalachian Corporation should record on December 31, 2014, for the City Grandview division, we must compare the fair value of the reporting unit with its carrying amount. Given that the fair value of City Grandview is $6,500,000 and the carrying amount is $6,200,000 the fair value exceeds the carrying amount, which indicates there is no impairment of goodwill. Thus, the correct answer is C. $0, meaning Appalachian Corporation should not record any impairment loss for goodwill on December 31, 2014.