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.

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.

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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Current assets 800,000 Noncurrent assets 2,700,000 Total assets $3,500,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity $ 600,000 500,000 2,400,000 $3,500,000