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1. During 2020, Spokane Ltd. purchased the net assets of Tacoma Corp. for $635,000. On the date of the transaction, Tacoma reported $200,000 in liabilities.

1. During 2020, Spokane Ltd. purchased the net assets of Tacoma Corp. for $635,000. On the date of the transaction, Tacoma reported $200,000 in liabilities. As well, the fair value of Tacomas assets were:

Current assets

$ 360,000

Noncurrent assets

840,000

$1,200,000

How should the difference between the fair value of the net assets acquired and the cost be accounted for by Spokane?

A

The difference should be credited to retained earnings.

B

The difference should be recognized as a gain in net income.

C

The noncurrent assets should be reduced appropriately.

D

The difference should be prorated between the current and the noncurrent assets.

2. Under ASPE, which of the following statements best describes when goodwill should be tested for impairment?

A

Goodwill should be tested for impairment when events or changes in circumstances indicate that impairment may have occurred.

B

Goodwill should be tested annually for impairment regardless of the circumstances.

C

Goodwill should be tested for impairment annually and whenever events or changes in circumstance indicate that impairment may have occurred.

D

Goodwill should only be tested for impairment when the company follows a policy to amortize its goodwill.

3. On September 2020, Princes Corporation acquired Royal Mile Incorporated for a cash payment of $864,300. At the time of the purchase, Royal Miles statement of financial position showed assets of $890,600, liabilities of $469,700, and owners equity of $420,900. The fair value of Royal Miles assets is estimated to be $1,162,900. Assume that Princes Corporation is a public company and that the goodwill was allocated entirely to one cash-generating unit (GU). Two years later, the CGUs carrying amount is $3,530,300, the value in use is $3,458,200, and the fair value less costs to sell is $3,058,200. Goodwill is

A

not impaired.

B

impaired by $72,100.

C

impaired by $472,100.

D

not enough information is provided to assess impairment.

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