Question
Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $324,250 in cash and issued
Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $324,250 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonsos stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAires assets and liabilities are assigned to a new reporting unit.
The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.
BelAire Reporting Unit | Fair Values 1/1/20 | Carrying Amounts 12/31/21 | ||||
Cash | $ | 90,500 | $ | 48,500 | ||
Receivables | 210,250 | 243,500 | ||||
Inventory | 219,500 | 258,500 | ||||
Patents | 390,500 | 501,500 | ||||
Customer relationships | 681,500 | 658,000 | ||||
Equipment (net) | 386,000 | 289,000 | ||||
Goodwill | ? | 556,000 | ||||
Accounts payable | (178,000 | ) | (246,000 | ) | ||
Long-term liabilities | (532,000 | ) | (448,000 | ) | ||
Note: Parentheses indicate a credit balance.
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Prepare Alfonsos journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts.
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On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,705,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?
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