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Chapter 12: Q7BE. (page 638)

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division鈥檚 net assets, including the goodwill, have a carrying amount of \)800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters鈥� journal entry, if necessary, to record impairment of the goodwill.

Short Answer

Expert verified

The debited amount is loss on impairment by $50,000 and credited amount is goodwill by $50,000.

Step by step solution

01

Step1- Explanation

The fair value of the reporting unit ($750,000) is less than the carrying value ($800,000)鈥� an impairment has occurred. The loss is the difference between the recorded goodwill and the implied goodwill.

02

Step2- Journal Entry

Date

Particulars

JF

Debit

Credit

Loss on Impairment

50,000

Goodwill

50,000

(Being goodwill impairment is recorded)

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Most popular questions from this chapter

King Company is contemplating the purchase of a smaller company, which is a distributor of King鈥檚 products. Top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to analyze the effects of the acquisition on the combined company鈥檚 financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a 鈥渄rag鈥� on future earnings for goodwill amortization. Other younger members on the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.

Instructions

Access the IFRS authoritative literature at the IASB website (http://eifrs.iasb.org/). (Click on the IFRS tab and then register for free eIFRS access if necessary.) When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following questions. (Provide paragraph citations.)

  1. Identify the accounting literature that addresses goodwill and other intangible assets.
  2. Define goodwill.
  3. Is goodwill subject to amortization? Explain.
  4. When goodwill is recognized by a subsidiary, should it be tested for impairment at the consolidated level or the subsidiary level? Discuss.

Fairbanks Corporation purchased 400 shares of Sherman Inc. common stock for \(13,200 (Fairbanks does not have significant influence). During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman stock was selling for $34.50 per share. Prepare Fairbanks鈥� journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustmentaccount.)

Columbia Sportswear Company acquired a trademark that is helpful in distinguishing one of its new products. The trademark is renewable every 10 years at minimal cost. All evidence indicates that this trademarked product will generate cash flows for an indefinite period of time. How should this trademark be amortized?

Question: Explain how the investment account is affected by investee activities under the equity method.

Question: Where can authoritative IFRS guidance related to intangible assets be found?

See all solutions

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