Assessing Goodwill Impairment On January 1, 2019, Engle Company purchases 100% of Ball Company for $16.8 million. At the time of acquisition, Ball's stockholders' equity (and the fair value of its identifiable net assets) is reported at $10.2 million. Engle ascribes the excess of $6.6 million to goodwill. Assume that the fair value of Ball declines to $12.5 million.
a. Provide computations to determine if the goodwill has become impaired and, if so, the amount of the impairment.
b. What impact does the impairment of goodwill have on Engel's financial statements?
1. The impairment has no effect on Engel's income statement but reduces Engel's assets and stockholders' equity.
2. The impairment reduces Engel's net income and reduces Engel's assets and stockholders' equity
3. The impairment reduces Engel's net income but has no effect on Engel's assets or stockholders' equity
4. Since there was no impairment, Engel's financial statements are not affected.