Question

MacGregor Outdoor Sporting purchased the Snow Peaks Ski Resort on August 31, 2019 for the price of $850 million. MacGregor issued a note payable to the previous owners of Snow Peaks for the purchase price.   Included in the purchase price are assets with a fair market value of $990 million and liabilities of $425 million.

1)      Calculate the value of goodwill at the time of acquisition? Show your work.                      

2)      Prepare MacGregor’s journal entry at August 31, 2019 for the purchase of Snow Peaks.   

3)      Suppose the valuation of the goodwill on May 31, 2020 is determined by a business valuator to be $200 million. Prepare a journal entry if necessary.                                                                          

Answer 1

1
Goodwill is the amount paid in excess of the fair value of net assets acquired
Purchase consideration	$850	million
Less: Fair market value of net assets (990-425)	$565	million
Goodwill on acquisition	$285	million
2
Journal entry for purchase of Snow peaks
Date	General Journal	Debit	Credit
31-Aug-19	Assets	$990
	Goodwill	$285
	Liabilities		$425
	Notes payable		$850
	(To record purchase of snow peaks)
Since the type of asset and liabilities acquired are not mentioned we are debiting and crediting the same as assets and liabilities
3
The value of goodwill on 31st May 2020 is $200 million which has reduced from $285 million
Thus, there is impairment of goodwill and impairment loss should be recognized
Date	General Journal	Debit	Credit
31-May-20	Impairment loss (285-200)	$85
	Goodwill		$85
	(To record impairment of goodwill)