Question

In: Accounting

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

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 2 years ago

Parent purchased Subsidiary on January 1, 2019. The parent uses the equity method to account for...

Parent purchased Subsidiary on January 1, 2019. The parent uses the equity method to account for its investment in its subsidiary. The excess of investment cost over book value was allocated as follows: Equipment (20-year life) $400,000 Customer list (10-year life) 90,000 Patent (5-year life) 125,000 Goodwill 165,000 Total $780,000 Parent regularly sells merchandise to Subsidiary. In 2021, inter-company sales amounted to $60,100, with $18,000 of deferred profit remaining in ending inventory. Year-end inter-company receivables/payables amounted to $24,000. In 2022,...

Account for debt investment reported at amortized cost—effective-interest method.

Account for debt investment reported at amortized cost—effective-interest method. Strand Corp. purchased $300,000 of five-year, 4% Hydrocor bonds at 99 on June 30, 2017. Strand Corp. purchased the bonds to earn interest. Interest is paid semi-annually each June 30 and December 31. The semi-annual amortization amount for the first interest period is $273 determined using the effective-interest method. At December 31, 2017, the bonds were trading at 98. Prepare the required journal entries on June 30 and December 31,...

When the equity method of accounting for investments is used by the investor, the investment account...

When the equity method of accounting for investments is used by the investor, the investment account is increased when: A cash dividend is received from the investee. The investee reports a net income for the year. The investor records additional depreciation related to the investment. The investee reports a net loss for the year.Assume that, on 1/1/06, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book...

1. Angelo uses the equity method to account for its investment in Fischer on January...

1. Angelo uses the equity method to account for its investment in Fischer on January 1. On the date of acquisition, Fischer’s land and buildings were undervalued on its balance sheet. During the year following the acquisition, how do these excesses of fair values over book values affect Angelo's Equity Income from Fischer? a. Building, Decrease; Land, No Effect b. Building, Decrease; Land, Decrease c. Building, Increase; Land, Increase d. Building, Increase; Land, No Effect 2. On January...

Consolidation several years subsequent to date of acquisition—Equity method Assume a parent company acquired a subsidiary...

Consolidation several years subsequent to date of acquisition—Equity method Assume a parent company acquired a subsidiary on January 1, 2017. The purchase price was $820,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Original Amount Original Useful Life Property, plant and equipment (PPE), net $240,000 12 years Patent 240,000 8 years License 160,000 10 years Goodwill 180,000 Indefinite $820,000 The [A] assets...

1. When preparing a consolidated balance sheet: A.neither investment in subsidiary nor the subsidiary's shareholders' equity...

1. When preparing a consolidated balance sheet: A.neither investment in subsidiary nor the subsidiary's shareholders' equity will be presented B.the shareholders' equity of the parent will be eliminated but investment in subsidiary will be presented C.investment in subsidiary will be presented but the shareholders' equity of the subsidiary will be eliminated D.both investment in subsidiary and the shareholders' equity of the parent will be eliminated 2.Goodwill is a(n) ________ on the ________. A.longminus−term investment; consolidated balance sheet B.current asset; subsidiary's...

1.When would the equity method be used to account for a long-term investment in stocks? (Be...

1.When would the equity method be used to account for a long-term investment in stocks? (Be specific with respect to the percentage ownership.) 2 Consider your answer to the previous question. Why wouldn’t mark-to-market accounting be appropriate for such an investment? (Be specific.) 3 Reference the preceding questions. Why would the equity method never be appropriate for short-term investments in stocks? (Be specific.) 4 Briefly describe how an investment’s carrying value is determined if the equity method is being used.

Question

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

Solutions

Expert Solution

Related Solutions