On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. 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. $440,000 2,460,000 (640,000) (440,000) $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000
On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. 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. $440,000 2,460,000 (640,000) (440,000) $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1. Determine the impairment loss, if any, to be recorded on December 31,2020
a) Assume that the fair Value of the Conchita Division is 41764000 instead of $1850000. Determine the impairment loss, if any, to be recorded on December 31,2020
b) Prepare the
Transcribed Image Text:On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a
division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition.
Current assets
Noncurrent assets
Total assets
$720,000
2,500,000
$3,220,000
Current liabilities
Long-term liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Current assets
Noncurrent assets (including goodwill recognized in purchase)
Current liabilities
Long-term liabilities
Net assets
$440,000
2,460,000
(640,000)
(440,000)
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. 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.
$1,820,000
$520,000
420,000
Finally, it is determined that the fair value of the Conchita Division is $1,850,000.
2,280,000
$3,220,000
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