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Homework answers / question archive / 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

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

Accounting

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.

 

 

 

Collapse question part

(a)

 

   

Compute the amount of goodwill recognized, if any, on July 31, 2020. (If answer is zero, do not leave answer field blank. Enter 0 for the amount.)

 

The amount of goodwill

$250,000

 

 

(b)

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

$enter the impairment loss in dollars

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a) Computation of Amount of Goodwill recognized, if any, on July 31, 2020:

Goodwill= Fair Value of the Division - Fair Value of the Identifiable Assets

= $2,800,000 - $2,550,000

$250,000

 

b) Computation of Impairment Loss, if any, to be recorded on December 31, 2020:

Impirement loss to be recorded will be = $0

No impairment loss is recorded, because the fair value of Conchita $1,850,000 is greater than the carrying value of the net assets $1,530,000.