paid $3,500,00 to acquire all of the common stock of Dumber Corporation on 2. Jo
ID: 2542601 • Letter: P
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paid $3,500,00 to acquire all of the common stock of Dumber Corporation on 2. John Doe Company May 31, 2017 Balance Sheet of acquired company reflects the following: Curr Stockholders Equity 2,500,000 ent assets $900,000 Non-Current Assets 2,700,000 Current Liabilities 600,000 L-T liabilities 500,000 Net assets for Dumber Company had a fair value of 3,100,000 on date of acquisition As of the end of the year - Dec 31, 2017, the Dumber Company had current assets of 800 current assets 2,400,000; current liabilities 700,000 and I-t liabilities of 500,000. ,000, non- The fair value of Dumber Company is $2,200,000. The recorded amount for Dumber's net assets excluding goodwill is the same as fair value, except for property, plant and equipmen value of $200,000 above the carrying value. t, which has a fair A. What was goodwill recognized, if any, on May 31, 2017? Show computation- no journal entry B. Determine the impairment loss if any and show the journal entry if needed as of Dec 31, 2017. If the fair value of Dumber was $1,950,000 instead of $2,200,000-write the journal entry to record any necessary entries as of Dec 31, 2017. Show calculations and journal entry if needed C.Explanation / Answer
Requirement 1 The computation of goodwill recognized on May 31, 2017 Purchase price of Dumber Corporation 3500000 Less : Fair value of net asset of Dumber Corporation 3100000 Goodwill to be recognized 400000 Requirement 2 There will not be impairment loss with fair value of Dumber Company is $2200000, as it is above the carrying value of $2000000 as reported in the balance sheet of Dumber Company. Requirment 3 There will be impairment loss of $50000 calculated as follows Carrying value of Dumber Corporation's Net asset 2000000 Less : Fair value of Dumber Corporation'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, 2017 Impairment losses 50000 Goodwill 50000 To record the impairment loss to goodwill Working Note : Calculation of Dumber Corporation's Carrying Value at December 31, 2017 Current assets 800000 Non-current assets 2400000 Total asset 3200000 Less : Outside Liabilities Current Liabilities 700000 L-t Liabilities 500000 Carrying Value at December 31, 2017 2000000
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