On May 31, 2013, Armstrong Company paid $3,300,000 to acquire all of the common

Question

On May 31, 2013, Armstrong Company paid $3,300,000 to acquire all of the common stock of Hall Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the time of the acquisition:
Current assets: $900,000
Noncurrent assets: $2,700,000
Total assets: $3,600,000

Current liabilities: $600,000
Longterm liabilities: $500,000
Stockholders equity:$2,500,000
Total liability & equity:$3,600,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was $2,800,000. At December 31, 2013, Hall reports the following balance sheet information:
Current assets: $800,000
Noncurrent assets: $2,400,000 (including goodwill recognized in purchase)
Current liabilities: ($700,000)
Longterm liabilities: ($500,000)
Net assets: $2,000,000

It is determined that the fair value of the Hall division is $2,100,000. The recorded amount for Hall's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value of $200,000 above the carrying value.

A) Compute the amount of goodwill recognized, if any, on May 31, 2013
B) Determine the impairment loss, if any, to be recorded on Dec 31, 2013
C) Assume that the fair value of the Hall division is $1,950,000 instead of $2,100,000. Prepare the journal entry to record the impairment loss, if any, on Dec 31, 2013.

Explanation / Answer

Selling Price                3300000

Fair Value                   (2800000)

Goodwill Recognized 500000                                                                                               

B. No impairment loss because fair value hall
(2100000) is carrying value. 2100000 >2000000

c.) Fair value of hall Divisions 195,000

Carrying value of Divisions 2,000,000

Increasing value in property plant and equipment 200,000

Loss on goodwill             (500,000)

                                                Loss on good will                            (1700000)

Implied value of good will                                                               250000

Carrying amount of goodwill                                                        (500,000)

Loss on impairment                                                                             (250,000)

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