P11.4 (LO 3) Groupwork (Goodwill, Impairment) On July 31, 2025, Mexico Company paid $3,000,000 to acquire all of the common stock ofConchita Incorporated, which became a division (a reporting unit) of Mexico. Conchita reported the following balance sheet at the time of the acquisition.Current assetsNoncurrent assetsTotal assets$ 800,0002,700,000$3,500,000Current liabilitiesLong-term liabilitiesStockholders' equity2,400,000Total liabilities and stockholders' equity $3,500,000$ 600,000500,000It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,750,000. Over the next 6 months ofoperations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeablefuture. At December 31, 2025, Conchita reports the following balance sheet information.Current assetsNoncurrent assets (including goodwill recognized in purchase)Current liabilities$ 450,0002,400,000(700,000)(500,000)$1,650,000Long-term liabilitiesNet assetsFinally, it is determined that the fair value of the Conchita Division is $1,850,000.Instructionsa. Compute the amount of goodwill recognized, if any, on July 31, 2025.b. Determine the impairment loss, if any, to be recorded on December 31, 2025.c. Assume that fair value of the Conchita Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded onDecember 31, 2025.d. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Impairment loss is the loss that shows that the fair market value of the asset is higher than its…

P11.4 (LO 3) Groupwork (Goodwill, Impairment) On July 31, 2025, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Mexico. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $ 800,000 2,700,000 $3,500,000 Current liabilities Long-term liabilities Stockholders' equity 2,400,000 Total liabilities and stockholders' equity $3,500,000 $ 600,000 500,000

P11.4 (LO 3) Groupwork (Goodwill, Impairment) On July 31, 2025, Mexico Company paid $3,000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Mexico. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $ 800,000 2,700,000 $3,500,000 Current liabilities Long-term liabilities Stockholders' equity 2,400,000 Total liabilities and stockholders' equity $3,500,000 $ 600,000 500,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

P11.4 (LO 3) Groupwork (Goodwill, Impairment) On July 31, 2025, Mexico Company paid $3,000,000 to acquire all of the common stock of
Conchita Incorporated, which became a division (a reporting unit) of Mexico. Conchita reported the following balance sheet at the time of the acquisition.
Current assets
Noncurrent assets
Total assets
$ 800,000
2,700,000
$3,500,000
Current liabilities
Long-term liabilities
Stockholders' equity
2,400,000
Total liabilities and stockholders' equity $3,500,000
$ 600,000
500,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,750,000. 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, 2025, Conchita reports the following balance sheet information.
Current assets
Noncurrent assets (including goodwill recognized in purchase)
Current liabilities
$ 450,000
2,400,000
(700,000)
(500,000)
$1,650,000
Long-term liabilities
Net assets
Finally, it is determined that the fair value of the Conchita Division is $1,850,000.
Instructions
a. Compute the amount of goodwill recognized, if any, on July 31, 2025.
b. Determine the impairment loss, if any, to be recorded on December 31, 2025.
c. Assume that fair value of the Conchita Division is $1,600,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on
December 31, 2025.
d. 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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