On July 31, 2015, Mexico Company paid \($3\),000,000 to acquire all of the common stock of Conchita Incorporated, which became a division (cash-generating unit) of Mexico. Conchita reported the following statement of financial position at the time of the acquisition.

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, 2015, Conchita reports the following statement of financial position information.

It is determined that the recoverable amount of the Conchita Division is \($1\),850,000.
Instructions

(a) Compute the amount of goodwill recognized, if any, on July 31, 2015.

(b) Determine the impairment loss, if any, to be recorded on December 31, 2015.

(c) Assume that the recoverable amount 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, 2015.

(d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.

Transcribed Image Text:

Non-current assets Current assets Total assets $2,700,000 800,000 $3,500,000 Equity Non-current liabilities Current liabilities Total equity and liabilities $2,400,000 500,000 600,000 $3,500,000