Question

On July 31, 2020, Sunland Company paid $2,850,000 to acquire all of the common stock of...

On July 31, 2020, Sunland Company paid $2,850,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Sunland. Conchita reported the following balance sheet at the time of the acquisition.
Current assets

$750,000

 Current liabilities

$560,000
Noncurrent assets

2,550,000

 Long-term liabilities

460,000
   Total assets

$3,300,000

 Stockholders’ equity

2,280,000
   Total liabilities and stockholders’ equity

$3,300,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,500,000. 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

$460,000
Noncurrent assets (including goodwill recognized in purchase)

2,180,000
Current liabilities

(620,000

)
Long-term liabilities

(420,000

)
   Net assets

$1,600,000

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

(a)

Your answer is correct.
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.)
The amount of goodwill $enter The amount of goodwill in dollars

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(b)

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.)
The impairment loss $enter the impairment loss in dollars
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Homework Answers

Answer #1

A

Answer: Goodwill recognized on July 31, 2020 = $350000.

Explanation:

Goodwill = Excess of cost of the division over the fair value of the identified assets
Goodwill recognized on July 31, 2020:
Consideration Paid $2850000
Less: Fair value of identifiable net assets of Conchita -$2500000
Goodwill   $350000

B N0 IMPAIRMENT LOSS IS RECORDED ,BECAUSE THE FAIR VALUE OF CONCHITA ,(1,850,000) IS GREATER THAN CARRING VALUE OF THE NET ASSETS (1,600,000)

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