Assume that the fair value of the Hall division is $1,950,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2018

Account Titles and Explanation

Debit

Credit

Loss on Impairment250,000

Goodwill250,000

Solution

Computation of impairment loss:

Implied fair value of goodwill = Fair value of division less the carrying value of the division (adjusted for fair value changes), net of goodwill:

Fair value of Hall division

$1,950,000

Carrying value of division

$2,000,000

Increase in fair value of PP&E

200,000

Less goodwill

(400,000)

Implied fair value of goodwill

(1,800,000)

Carrying amount of goodwill

150,000

Loss on impairment

(400,000)

$(250,000)

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*** NOTE: $250,000 is the wrong answer. Please help.