Question

Mesa Corporation purchased Kwick Company's net assets and assigned goodwill of $82,100 to Reporting Division K. The following assets and liabilities are assigned to Reporting Division K:

	Carrying Amount			Fair Value
Cash	$	16,100		$	16,100
Inventory		58,100			73,100
Equipment		191,000			211,000
Goodwill		82,100
Accounts Payable		32,100			32,100

Required:

Determine the amount of goodwill to be reported for Division K and the amount of goodwill impairment to be recognized, if any, if Division K's fair value is determined to be a. $361,000, b. $301,000 and c. $281,000.

Answer 1

	Goodwill	Goodwill impairement loss
(a)	$                   82,100	$              -
(b)	$                   32,900	$     49,200
(c)	$                   12,900	$     69,200
		Carrying amount	Fair value
	Cash	$     16,100	$     16,100
Add:	Inventory	$     58,100	$     73,100
Add:	Equipment	$ 1,91,000	$ 2,11,000
Add:	Goodwill	$     82,100
Less:	Accounts payable	$     32,100	$     32,100
		$ 3,15,200	$ 2,68,100
(a)	Fair Value	$ 3,61,000
	Here, the fair value of the reporting unit is greater than the carrying amount of the investment ($3,61,000 > $3,15,200) and no need arises for impairment test.
	Therefore, goodwill to be reported = $82,100
(b)	Fair Value	$ 3,01,000
	Here, the fair value of the reporting unit is less than the carrying amount of the investment ($3,01,000 < $3,15,200). Goodwill to be reported = (Fair value of reporting unit - fair value of net assets).
	Goodwill to be reported = ($3,01,000 - $2,68,100) = $32,900
	and Goodwill impairment = ($82,100 - $32,900)= $49,200 impairement loss will be reported.
(c)	Fair Value	$ 2,81,000
	Here, the fair value of the reporting unit is less than the carrying amount of the investment ($2,81,000 < $3,15,200). Goodwill to be reported = (Fair value of reporting unit - fair value of net assets).
	Goodwill to be reported = ($2,81,000 - $2,68,100) = $12,900
	and Goodwill impairment = ($82,100 - $12,900)= $69,200 impairement loss will be reported.