Conchita reports the following balance sheet information. Current assets   $480,000   Noncurrent assets (including goodwill recognized in purchase)   2,330,000   Current liabilities   (660,000 ) Long-term liabilities   (460,000 )    Net assets   $1,690,000   Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 1). Compute the amount of goodwill recognized, if any, on July 31, 2020.  2). Determine the impairment loss, if any, to be recorded on December 31, 2020.  3). Assume that fair value of the Conchita Division is $1,642,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2020

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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On July 31, 2020, Ivanhoe Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Ivanhoe. Conchita reported the following balance sheet at the time of the acquisition.

Current assets
 
$750,000
 
Current liabilities
 
$500,000
Noncurrent assets
 
2,700,000
 
Long-term liabilities
 
400,000
   Total assets
 
$3,450,000
 
Stockholders’ equity
 
2,550,000
       
   Total liabilities and stockholders’ equity
 
$3,450,000


It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,755,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information.

Current assets  
$480,000
 
Noncurrent assets (including goodwill recognized in purchase)  
2,330,000
 
Current liabilities  
(660,000
)
Long-term liabilities  
(460,000
)
   Net assets  
$1,690,000
 


Finally, it is determined that the fair value of the Conchita Division is $1,850,000.

1). Compute the amount of goodwill recognized, if any, on July 31, 2020. 

2). Determine the impairment loss, if any, to be recorded on December 31, 2020. 

3). Assume that fair value of the Conchita Division is $1,642,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2020

4). Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement

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