35. Goodwill, impairment. On May 3, 2018, Armstrong Company paid $3,500,000 to a

Question

35. Goodwill, impairment. On May 3, 2018, Armstrong Company paid $3,500,000 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: $ 900,000 2,700,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and S 600,000 500,000 2,500,000 Current assets Noncurrent assets Total assets stockholders' 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 S3,100,000. At December 31, 2018, Hall reports the following balance sheet information: Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities S 800,000 2,400,000 (700,000) Net assets $2,000,000 It is determined that the fair value of the Hall division is $2,200,000. 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 Instructions (a) Compute the amount of goodwill recognized, if any, on May 31, 2018 (b) Determine the impairment loss, if any, to be recorded on December 31, 2018 (c) Assume that the fair valuc of the Hall division is $1,950,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31,2018

Explanation / Answer

Requirement 1 The computation of goodwill recognized on May 31, 2018 Purchase price for Hall Corporation 3500000 Less : Fair value of net asset of Hall Corporation 3100000 Goodwill to be recognized 400000 Requirement 2 There will not be impairment loss with fair value of Hall division is $2200000, as it is above the carrying value of $2000000 as reported in the balance sheet of Hall Requirment 3 There will be impairment loss of $50000 calculated as follows Carrying value of Hall's Net asset 2000000 Less : Fair value of Hall's net asset 1950000 Impairment loss to be adjusted against goodwill as priority 50000 The Journal entry is as follows Amount in $ Date General Journal Debit Credit December 31, 2018 Impairment losses 50000 Goodwill 50000 To record the impairment loss to goodwill

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