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On May 31, 2021, Sunland Company paid $3,780,000 to acquire all of the common stock of...

On May 31, 2021, Sunland Company paid $3,780,000 to acquire all of the common stock of Carla Vista Corporation, which became a division of Sunland. Carla Vista reported the following balance sheet at the time of the acquisition:

Current assets $  972,000 Current liabilities $  648,000
Noncurrent assets 2,916,000 Long-term liabilities 540,000
Stockholder's equity 2,700,000
Total assets $3,888,000 Total liabilities and
  stockholder's equity		 $3,888,000


It was determined at the date of the purchase that the fair value of the identifiable net assets of Carla Vista was $3,348,000. At December 31, 2021, Carla Vista reports the following balance sheet information:

Current assets $  864,000
Noncurrent assets (including goodwill recognized in purchase) 2,592,000
Current liabilities (756,000 )
Long-term liabilities (540,000 )
Net assets $2,160,000


It is determined that the fair value of the Carla Vista division is $2,376,000.

Part 1

Compute the amount of goodwill recognized, if any, on May 31, 2021.

Amount of goodwill $

Part 2

Determine the impairment loss, if any, to be recorded on December 31, 2021.

Impairment loss $

Part 3

Assume that the fair value of the Carla Vista division is $2,106,000 instead of $2,376,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2021. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

Solutions

Expert Solution

Part 1

Compute the amount of goodwill recognized, if any, on May 31, 2021.

Amount of goodwill

The formula for goodwill is:

Goodwill = (Acquisition paid + Fair value of non-controlling interests + Fair value of equity interests) – Fair value of net identifiable assets

Goodwill = 3,780,000 - 33,48,000 = 4,32,000

So Goodwill of of Carla Vista Corporation on 31st May 2021 was $ 4,32,000/-

Part 2

No there was not any impairment loss to be accounted as Carla Vista Corporation as they have earned $ 4,32,000/- in goodwill.

Part 3

Assume that the fair value of the Carla Vista division is $2,106,000 instead of $2,376,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2021.

With Information given in part 3 I understand that there is no impairment loss. As fair value is much higher than goodwill earned on 31st May 2021 as per my considerate in part 1.

Sr. No

Particulars

Dr. Amt

Cr. Amt

1

No Entry

0

0

ekkarill92 answered 3 years ago
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