Question

Wildhorses Construction & Paving expanded its business by purchasing Alcott Maintenance, a division that provides road...

Wildhorses Construction & Paving expanded its business by purchasing Alcott Maintenance, a division that provides road maintenance services. The division was purchased three years ago for $3,094,000 and has been identified as a reporting unit. The net assets for the division including goodwill are as follows:
Cash $241,000
Accounts Receivables 275,000
Inventory 759,000
Property, Plant & Equipment 1,043,000
Goodwill 1,143,000
Accounts Payable (112,000 )
Unearned Revenue (74,000 )
Net assets, at carrying amounts $3,275,000

The fair value of the Alcott Maintenance Division reporting unit as a whole is estimated to be $3,015,000. Management determines that the unit’s value in use is $3,111,000.

(a)

Prepare any appropriate journal entries for goodwill impairment assuming that Wildhorse Construction & Paving is reporting under ASPE. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

Homework Answers

Answer #1

Ans: Journal Entry:

Date Account title and explanation Debit($) Credit($)
Loss On Impairment- Goodwill 260,000
Accumulated Impairment Goodwill 260,000
( to record goodwill impairment)

loss on impairment= 3,275,000-3,015,000

=> 260,000

If the market value is lower than the carrying value, then impairment test will  determining the cause of this difference

And the Entry Will be done by debiting Loss on impairment, If the market Value is more than carrying Value,Then no goodwill Impairment is Necessary. and here market value is 3,015,000 lesser than carrying Value i.e. 3,275,000

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