Assume the equity method Equity Investment account relating to a subsidiary has a reported balance of...

Assume the equity method Equity Investment account relating to a subsidiary has a reported balance of $5,310,000, including $270,000 of Goodwill. The fair value of the subsidiary is $4,950,000. The fair value of the subsidiary’s individually identifiable net assets is $4,500,000. The subsidiary has only one reporting unit, which is the same as the overall entity.

For this fact set, determine whether Goodwilll is impaired and, if so, the amount of impairment assuming the parent company has previously adopted FASB ASU 2017-04.
Enter the impairment amount below. If Goodwill is not impaired, enter zero.
$Answer

Prepare the required journal entry if you determine Goodwill is impaired.
If Goodwill is not impaired, select "No entry" as your answers under Description and leave the Debit and Credit answers blank (zero).

Description	Debit	Credit
APICCommon stockDividendsEquity income from subsidiaryEquity investmentGoodwillOperating expensesRetained earningsNo entry
APICCommon stockDividendsEquity income from subsidiaryEquity investmentGoodwillOperating expensesRetained earningsNo entry

How would your answer above change if all of the information is the same, except the fair value for the subsidiary is $5,058,000?
If Goodwill is not impaired, select "No entry" as your answers under Description and leave the Debit and Credit answers blank (zero).

Description	Debit	Credit
APICCommon stockDividendsEquity income from subsidiaryEquity investmentGoodwillOperating expensesRetained earningsNo entry
APICCommon stockDividendsEquity income from subsidiaryEquity investmentGoodwillOperating expensesRetained earningsNo entry

Solutions

Expert Solution

Assess fair value of cash generating unit, this can be done using present value technique Compare fair value with carrying value If fair value is lower than carrying value goodwill should be impaired and loss should be booked.

Under FASB ASU 2017 - 04

If the fair value of a reporting unit is exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a subsidiary unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess limited to the total amount of goodwill allocated to that reporting unit.

> If the fair value lower than carrying value, impairment exists.

Fair value of subsidiary = $4,950,000

Carrying value of subsidiary Investment = $5,310,000

Impairment of Loss on good will (Limit to its good will book value ) = $270000

Journal entry:-

The required journal entries if indeed there is goodwill impairment.
Accounts	Dr	Cr
Loss on goodwill impairment	$270000
Goodwill		$270000

How would your answer above change if all of the information is the same, except the fair value for the subsidiary is $5,058,000?

Fair value of subsidiary = $5,058,000

Carrying value of subsidiary Investment = $5,310,000

Impairment of Loss on good will = $252000

Now the Book value of goodwill be $18000 ( 272000 - 252000 )

The required journal entries if indeed there is goodwill impairment.
Accounts	Dr	Cr
Loss on goodwill impairment	$252000
Goodwill		$252000

ekkarill92 answered 1 year ago

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