On July 31, 2020, 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, 2020, Conchita reports the following balance sheet information.

Current assets..............................................................................................$ 450,000Noncurrent assets (including goodwill recognized in purchase)..........2,400,000Current liabilities..........................................................................................(700,000)Long-term liabilities.....................................................................................(500,000)Net assets..................................................................................................$1,650,000

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, 2020.

b. Determine the impairment loss, if any, to be recorded on December 31, 2020.

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, 2020.

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