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Q7BE.

Expert-verified
Intermediate Accounting (Kieso)
Found in: Page 638

Short Answer

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of $400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of $800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

The debited amount is loss on impairment by $50,000 and credited amount is goodwill by $50,000.

See the step by step solution

Step by Step Solution

Step1- Explanation

The fair value of the reporting unit ($750,000) is less than the carrying value ($800,000)— an impairment has occurred. The loss is the difference between the recorded goodwill and the implied goodwill.

Step2- Journal Entry

Date

Particulars

JF

Debit

Credit

Loss on Impairment

50,000

Goodwill

50,000

(Being goodwill impairment is recorded)

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