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In: Accounting
Problem 12-04 On July 31, 2020, Sunland Company paid $2,800,000 to acquire all of the common...
Problem 12-04
On July 31, 2020, Sunland Company paid $2,800,000 to acquire all
of the common stock of Conchita Incorporated, which became a
division (a reporting unit) of Sunland. Conchita reported the
following balance sheet at the time of the acquisition.
|
Current assets |
$720,000 |
Current liabilities |
$510,000 |
|||
|---|---|---|---|---|---|---|
|
Noncurrent assets |
2,500,000 |
Long-term liabilities |
410,000 |
|||
|
Total assets |
$3,220,000 |
Stockholders’ equity |
2,300,000 |
|||
|
Total liabilities and stockholders’ equity |
$3,220,000 |
It was determined at the date of the purchase that the fair value
of the identifiable net assets of Conchita was $2,550,000. Over the
next 6 months of operations, the newly purchased division
experienced operating losses. In addition, it now appears that it
will generate substantial losses for the foreseeable future. At
December 31, 2020, Conchita reports the following balance sheet
information.
| Current assets |
$400,000 |
||
| Noncurrent assets (including goodwill recognized in purchase) |
2,330,000 |
||
| Current liabilities |
(700,000 |
) |
|
| Long-term liabilities |
(500,000 |
) |
|
| Net assets |
$1,530,000 |
Finally, it is determined that the fair value of the Conchita
Division is $1,850,000.
Assume that fair value of the Conchita Division is $1,478,000
instead of $1,850,000. Determine the impairment loss, if any, to be
recorded on December 31, 2020. (If answer is zero, do
not leave answer field blank. Enter 0 for the
amount.)
| The impairment loss? |
Prepare the journal entry to record the impairment loss, if any,
and indicate where the loss would be reported in the income
statement. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
|---|
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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