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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Several years ago, Blaha Company purchased Husker Company as a subsidiary. At that time, Blaha recorded goodwill of $100,000 related to the purchase. Since that time, the company has not considered the goodwill to be impaired. However, at the end of 2019, Blaha decides to evaluate the goodwill for impairment because of technological changes in the industry. Husker (which is considered a reporting unit of Blaha) has a book value (including the goodwill) of $800,000. Blaha estimates that the fair value of Husker is $720,000, of which it allocates $660,000 to Husker’s identifiable assets and liabilities.

Required:

  1. 1. Prepare the journal entry (if any) for Blaha to record the impairment of its goodwill at the end of 2019.
  2. 2. Next Level Would any additional impairment be required?
  3. 3. Assume that Blaha uses IFRS and has estimated the recoverable amount of Husker (which qualifies as a cash-generating-unit) to be $740,000. Prepare the journal entry for Blaha to record the impairment of its goodwill at the end of 2019.

1.

To determine

Prepare journal entries to record the impairment loss on goodwill of company B.

Explanation

Prepare journal entries to record the impairment loss on goodwill of company B.

Impairment loss of assets: Impairment loss of assets arises when the carrying value of the assets recorded on the balance sheet of the company exceeds its fair market value.

Prepare journal entry to record the impairment loss as follows:

DateAccounts Title and ExplanationDebit ($)Credit ($)
 Impairment Loss (1)80,000 
        Goodwill 80,000
 (To record the impairment loss)  

Table (1)

  • Impairment loss is an expense account, and it decreases the value of equity...

2.

To determine

Describe whether any additional impairment would be required.

3.

To determine

Prepare journal entries to record the impairment loss on goodwill of company B, assume that the company uses IFRS and has estimated the recoverable amount to be $740,000.

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