Question

On January 1, 20X1, Porta Corporation purchased Swick Company’s net assets and assigned goodwill of $80,900 to Reporting Division K. The following assets and liabilities are assigned to Reporting Division K on the acquisition date: Carrying Amount Fair Value Cash $ 14,900 $ 14,900 Inventory 56,900 71,900 Equipment 179,000 199,000 Goodwill 80,900 Accounts Payable 30,900 30,900 Required: On December 31, 20X3, Porta must test goodwill for impairment. Determine the amount of goodwill to be reported for Division K and the amount of goodwill impairment to be recognized, if any, if Division K’s fair value is determined to be $349,000. $289,000. $269,000.

	Amount of Goodwill Goodwill Impairment a. $80,900 $0 b. c.

Answer 1

	Division K
		Carrying Value	Fair Value
	Cash	$14,900	$14,900
	Inventory	$56,900	$71,900
	Equipment	$179,000	$199,000
	Goodwill	$80,900	$80,900
	Accounts Payable	$30,900	$30,900
	Total	$362,600	$397,600
1	$349,000
	As the amount of fair value of Division K is more than the carrying value of
	the investment of $301,700, the goodwill will be reported at $80,900
	and does not need to be tested for impairment.
2	$289,000
	As the amount of fair value of Division K is less than the carrying value of
	the investment of $301700, the goodwill need to be tested for impairment
	Carrying value of Division K	$301,700
	Fair value of Division K	$289,000
	Impairment Loss	$12,700
	Goodwill	$80,900
	Less: Impairment loss	$12,700
	Goodwill to be reported	$68,200
2	$269,000
	As the amount of fair value of Division K is less than the carrying value of
	the investment of $301700, the goodwill need to be tested for impairment
	Carrying value of Division K	$301,700
	Fair value of Division K	$269,000
	Impairment Loss	$32,700
	Goodwill	$80,900
	Less: Impairment loss	$32,700
	Goodwill to be reported	$48,200
	Note:
	Carrying value of Investment
	Cash	$14,900
	Inventory	$56,900
	Equipment	$199,000
	Accounts Payable	$30,900
	Total	$301,700