Question

In: Advanced Math

Jones Company provided the following information: Fair value of the reporting unit, including goodwill $1,400,000 Book...

Jones Company provided the following information:

Fair value of the reporting unit, including goodwill $1,400,000

Book value of reporting unit, excluding goodwill $1,000,000

Add: Carrying value of goodwill 600,000

Carrying value of the reporting unit, including goodwill $1,600,000

The qualitative assessment of goodwill is completed and it is more likely than not that goodwill is impaired. Describe the process for determining if Jones needs to record a goodwill impairment loss and prepare any required journal entries.

Expert Solution

we will perform the quantitative test.

Two-step Impairment test.

Step 1) Recoverability test - To judge whether to impair or not.

Compare Carrying value of the reporting unit (including goodwill) with the Fair value of the reporting unit (including goodwill).

1,600,000 - 1,400,000 = 200,000

Carrying value of the reporting unit (including goodwill) is greater than the Fair value of the reporting unit (including goodwill) therefore, impairment is required.

Step 2) Impairment Loss calculation

Book Value of Goodwill - Implied Fair Value of goodwill

Book Value of Goodwill is given as $600,000

Implied Fair Value of goodwill = Fair value of the reporting unit (including goodwill) - Fair Value of the reporting unit (excluding goodwill)

Implied Fair value of goodwill = 1,400,000 - 1,200,000 = 200,000

Therefore,

Impairment Loss = 600,000 - 200,000 = 400,000

Impairment Loss = Carrying value of the reporting unit (including goodwill) - Fair value of the reporting unit (including goodwill).

Impairment loss = $200,000

Colby Messinger answered 2 years ago

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