Question

On July 31, 2020, Oriole Company paid $2,750,000 to acquire all of the common stock of...

On July 31, 2020, Oriole Company paid $2,750,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Oriole. Conchita reported the following balance sheet at the time of the acquisition.

Current assets

$730,000

Current liabilities

$560,000

Noncurrent assets

2,450,000

Long-term liabilities

460,000

   Total assets

$3,180,000

Stockholders’ equity

2,160,000

   Total liabilities and stockholders’ equity

$3,180,000


It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,510,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information.

Current assets

$470,000
Noncurrent assets (including goodwill recognized in purchase)

2,050,000
Current liabilities

(620,000

)
Long-term liabilities

(420,000

)
   Net assets

$1,480,000


Finally, it is determined that the fair value of the Conchita Division is $1,850,000.

1.Compute the amount of goodwill recognized, if any, on July 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.)

2. Determine the impairment loss, if any, to be recorded on December 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.)
3. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Business   Accounting   
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Homework Answers

Answer #1

1. Goodwill recognized, on July 31, 2020:-

Consideration Paid          $2,750,000

Less : Fair value of net identifiable assets of Conchita   $2,510,000

Goodwill recognized, on July 31, 2020 $240,000

2.  Impairment loss to be recorded on December 31, 2020:-

Carrying Value of Net Assets                     $1,480,000

Fair Value of Net Assets   $1,850,000

Fair Value of Net Assets is more than the Carrying Value of Net Assets. Hence '0' Impairment loss to be recorded on December 31, 2020.

3. No Entry. Since there is no Impairment Loss

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