Question

Desert Company acquired Mountain Products on January 1, 2019, for $6,400,000, and recorded goodwill of $1,400,000 as a result of the purchase. At December 31, 2020, the Mountain Products Division had a fair value of $5,550,000. The net identifiable assets of the Division (including goodwill) had a book value of $5,220,000 at that time. What amount (if any) should Desert recognize as the loss on impairment of goodwill in 2020?

Answer 1

$1,070,000

Step-by-step explanation:

Calculation to determine What amount should Desert recognize as the loss on impairment of goodwill in 2020

Using this formula

Loss on impairment of goodwill in 2020=[Goodwill-(December 31, 2020 Fair value-Book value)]

Let plug in the formula

Loss on impairment of goodwill in 2020=$1,400,000-($5,550,000 - $5,220,000)

Loss on impairment of goodwill in 2020=$1,400,000- $330,000

Loss on impairment of goodwill in 2020=$1,070,000

Therefore The amount that Desert should recognize as the loss on impairment of goodwill in 2020 will be $1,070,000