On May 31, 2020, Roddick Company paid $3,400,000 to acquire all of the ordinary shares of Bolt Corporation, which became a division of Roddick. Bolt reported the following statement of financial position at the time of the acquisition: Equity $2,500,000 Non-current assets $2,700,000 Non-current liabilities 500,000 Current assets 900,000 Current liabilities 600,000 Total assets $3,600,000 Total equity and liabilities $3,600,000 It was determined at the date of the purchase that the fair value of the identifiable net assets of Bolt was $2,800,000. On December 31, 2020, Bolt reports the following statement of financial position information: Current assets $ 800,000 Non-current assets (including goodwill recognized in purchase) 2,400,000 Current liabilities (700,000) Non-current liabilities (500,000) Net assets $2,000,000 It is determined that the recoverable amount value of the Bolt Division is $2,100,000. Required i. Compute the amount of goodwill recognized, if any, on May 31, 2020. $Answer. ii. Prepare the journal entry to record the impairment loss, if any, on December 31, 2020 and justify your answer. Dr. Loss on Impairment $Answer Cr. Goodwill $Answer Justification: Since the recoverable amount $Answer of Bolt Division is Answergreater thanless than the carrying value $Answer of the net assets, an impairment loss of $Answer is recorded.
On May 31, 2020, Roddick Company paid $3,400,000 to acquire all of the ordinary shares of Bolt Corporation, which became a division of Roddick. Bolt reported the following statement of financial position at the time of the acquisition:
|
|
|
Equity |
$2,500,000 |
|
Non-current assets |
$2,700,000 |
Non-current liabilities |
500,000 |
|
Current assets |
900,000 |
Current liabilities |
600,000 |
|
Total assets |
$3,600,000 |
Total equity and liabilities |
$3,600,000 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of Bolt was $2,800,000. On December 31, 2020, Bolt reports the following statement of financial position information:
|
Current assets |
$ 800,000 |
|
Non-current assets (including |
2,400,000 |
|
Current liabilities |
(700,000) |
|
Non-current liabilities |
(500,000) |
|
Net assets |
$2,000,000 |
It is determined that the recoverable amount value of the Bolt Division is $2,100,000.
Required
i. Compute the amount of goodwill recognized, if any, on May 31, 2020. $Answer.
ii. Prepare the
|
Dr. Loss on Impairment |
$Answer |
|
|
Cr. Goodwill |
|
$Answer |
Justification:
Since the recoverable amount $Answer of Bolt Division is Answergreater thanless than the carrying value $Answer of the net assets, an impairment loss of $Answer is recorded.
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