Question
On May 31, 2021, CO Company paid $3,500,000 to acquire all of the common stock of NE Corporation, which became a division of CO. NE
On May 31, 2021, CO Company paid $3,500,000 to acquire all of the common stock of NE Corporation, which became a division of CO. NE reported the following balance sheet at the time of the acquisition:
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Current assets | $ 900,000 | Current liabilities | $ 600,000 | |
Noncurrent assets | 2,700,000 | Long-term liabilities | 500,000 | |
Stockholders equity | 2,500,000 | |||
Total assets | $3,600,000 | Total liabilities & stockholders' equity | $3,600,000 |
It was determined at the date of the purchase that the fair value of the identifiable net assets of NE was $3,100,000. At December 31, 2021, NE reports the following balance sheet information:
Current assets | $ 800,000 |
Non-current assets (including goodwill recognized in purchase) | 2,400,000 |
Current liabilities | (700,000) |
Long-term liabilities | (500,000) |
Net assets | $ 2,000,000 |
It was determined that the fair value of the NE division is $2,200,000. Instructions A. Compute the amount of goodwill recognized, if any, on May 31, 2021. B. Compute the impairment loss, if any, on December 31, 2021. C. Assume that the fair value of the NE division is $1,950,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2021.
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