Goodwill impairment question

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    Topic
  • #180612
    calicpa
    Participant

    Is the answer 0? Not sure what to think because the statement in the solution is false.

    Step one indicates that the carrying value ($4,000) is less than the market value ($3,200), so step two must be completed.

    This is an error. Is the answer A, or is it still D?

    BTW, this is another error in a solution from CPAexcel… they have SO many errors in their textbooks and solutions its ridiculous. (sorry Jeff, forgot to classify)

    Firm A purchased Firm B for $4,000 when B’s total owners’ equity was $2,000. Firm A completed the qualitative test for goodwill impairment and determined that it is more likely than not that goodwill may be impaired. B had one asset worth $500 more than the book value. One year after the purchase, Firm B’s total market value had dropped to $3,200 and the market value of its net identifiable assets was $2,000. What amount of goodwill impairment loss is recorded?

    A. $0

    B. $800

    C. $400

    D. $300

    A is Incorrect…

    The qualitative pre-step indicates the possibility that goodwill is impaired; therefore, the quantitative goodwill impairment test must be completed. Step one indicates that the carrying value ($4,000) is less than the market value ($3,200), so step two must be completed. Step two measures the potential impairment loss. The implied goodwill is the market value of the reporting unit ($3,200) less the market value of the net identifiable assets ($2,000) or $1,200. The recorded goodwill is $1,500 (purchase price $4,000-fair market value of net assets $2,500). The goodwill impairment loss is the implied goodwill ($1,200) less the recorded goodwill ($1,500) or $300.

    BEC - 84, 4/6/13
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  • #447848

    The Answer is Still D

    Step One:

    Value of Investment: 4,000

    FMV: 3,200

    Step Two:

    Carrying Value: 1,500 (4,000 purchase price – 2,000 equity – 500 appreciated asset)

    Implied Value: 1,200 (3,200 FMV – 2,000 identifiable assets)

    Impairment 300

    The solution should read more than, not less than.

    ALL 4 parts passed summer 13
    Ethics October 13
    Experience (waiting)

    Becker Only

    #447972

    The Answer is Still D

    Step One:

    Value of Investment: 4,000

    FMV: 3,200

    Step Two:

    Carrying Value: 1,500 (4,000 purchase price – 2,000 equity – 500 appreciated asset)

    Implied Value: 1,200 (3,200 FMV – 2,000 identifiable assets)

    Impairment 300

    The solution should read more than, not less than.

    ALL 4 parts passed summer 13
    Ethics October 13
    Experience (waiting)

    Becker Only

Viewing 2 replies - 1 through 2 (of 2 total)
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