The purpose of the Splish Brothers Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated
with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $440 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets' and liabilities' book and fair value amounts are the same.
Required: Prepare the journal entry to record the impairment at December 3 2017.
Required: Prepare the journal entry to record the impairment at December 3 2017.
1 answer:
Answer: Please refer to Explanation.
Explanation:
Your question was incomplete so I attached the missing details.
The Carrying Amount of the Division has to be ascertained to move forward as it is needed in calculating the loss on Impairment. It is calculated by subtracting Goodwill from the Net Assets.
= 496 - 214
= $282 million
Calculating the Loss on impairment is done by the following formula,
= Market Price - Carrying Amount of the Division (net of Goodwill) - carrying value of Goodwill
= 335 - 282 - 214
= -$161 million.
Journal Entry
DR Loss on Impairment $161 million
CR Goodwill $161 million
(To record the loss on Impairment)
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