On September 1, 2019, Undisputed Corporation acquired TLC Enterprises for a cash payment of $850,000. At...

On September 1, 2019, Undisputed Corporation acquired TLC Enterprises for a cash payment of $850,000. At the time of purchases, TLC’s balance sheet showed assets of $620,000, liabilities of $240,000, and owner's equity of $420,000. The fair value of TLC’s assets is estimated to be $970,000.

A: Compute the amount of goodwill acquired by Undisputed Corporation.

On September 30th, 2020 assume the TLC Enterprises Division of Undisputed Corporation has the following balance sheet. Assets (including goodwill): $1,030,000 – 350,000= 680k net asset Liabilities: 350,000 Equity: 680,000

B: Based on the above information, Assuming the FMV of the division is $750,000, determine the Goodwill Impairment to be recorded (and prepare the journal entry)

C: Independently from “B”, now Assuming the FMV of the division is $650,000 determine the Goodwill impairment to be recorded (and prepare the journal entry)

Solutions

Expert Solution

(A) The Amount of goodwill = Purchase price ( cash payment ) - Net Assets purchased

Net assets purchased = Fair value of assets - Laibilities

Net assets purchased = 970000 - 240000 = 730000

Purchase price = 850000

The amount of goodwill = $ 850000 - $ 730000 = $ 120000

(B) Carrying value of net assets= $ 680000

Fair value or market value = $ 750000

Here, market value is greater than carrying value.

If fair value or market value is greater than carrying value, then there is no need of impairment of goodwill.

Thus no jounal entry is required.

Particular	Debit ($)	Credit($)
Loss on impairment of Goodwill	30000
To Goodwill		30000
( To record impaiment loss on goodwill )

Working : Goodwill Impairment ( Impairment loss) = Book value of goodwill – Implied value of goodwill

Implied value of goodwill = Fair value of Division- Fair value of net assets (excluding goodwill)

Implied value of goodwill = 650000 - ( 680000 - 120000 ) = $ 90000

Goodwill Impairment ( Impairment loss) = $ 120000 - $ 90000 = $ 30000

ekkarill92 answered 2 years ago

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