On July 31, 2015, Baloo Company paid $3,029,500 in cash to acquire all of the co

Question

On July 31, 2015, Baloo Company paid $3,029,500 in cash to acquire all of the common stock of Louie Enterprises, which then became a division of Baloo. Louie had the following balance sheet at the time of the acquisition: It was determined at the date of the purchase that the fair value of the identifiable net assets of Louie was $2,752,700. Over the next 6 months of operations, the newly purchased division experienced significant operating losses. In addition, managers have Baloo have determined that the Louie division will continued to generate substantial losses for the foreseeable future. At December 31, 2015, Louie reports the following information: It is determined that the fair value of the Louie division is $1,863,000. The recorded amount for Louie's net assets (excluding goodwill) is the same as fair value, except for PP&E;, which has a fair value of $155,500 above the book value. Required: What is the amount of goodwill recognized, if any, on July 31, 2015? What is the impairment loss, if any, to be recorded on December 31, 2015? Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. Now assume that the fair value of the Louie division is $1,551,500 instead of $1,863,000. Determine the impairment loss, if any to be recorded on December 31, 2015. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Explanation / Answer

Answer:(a) Goodwill = Excess of the cost of the division over the fair value of the identifiable assets:

$3,029,500 - $2,752,700 = $276,800

Answer:(b) The fair value of Louie is $1,863,000, which is greater than the carrying value of the net assets, of $1,604,100. No impairment loss recorded.

Answer:(c)

Impairment loss A/C Dr. $ 208,100

     To Goodwill A/C                                         $208,100

This item will be described in revenue showing the previous the subtotal “revenue from remaining procedures.”

Fair value of Louie 1551500 Carrying value of Louie 1604100 Increase in the fair value of PPE 155500 Less: Recorded goodwill -276800 1482800 Implied fair value of goodwil 68700 Carrying value of goodwill -276800 Impairment loss -208100

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