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Chapter 12: Q12-8BE (page 638)

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Short Answer

Expert verified

Debited loss on Impairment by $50,000 and credited Goodwill by $50,000.

Step by step solution

01

Step-by-Step SolutionStep 1: Calculation

LossonImpairment=RecordedAmount-ImpliedAmount=$400,000-$350,000=$50,000

The reporting unit’s fair value ($750,000) is less than its carrying value ($800,000), indicating an impairment. The loss is the difference between the $400,000 in recorded goodwill and the $350,000 in implied goodwill.

02

Journal Entry

Date

Particulars

Debit

Credit

Loss on Impairment ($400,000 - $350,000)

$50,000

Goodwill

$50,000

(Being loss on impairment is recorded)

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