Question

Assume the equity method Equity Investment account relating to a subsidiary has a reported balance of $9,036,000, including $864,000 of Goodwill. The fair value of the subsidiary is $8,100,000. The fair value of the subsidiary's individually identifiable net assets is $7,740,000. The subsidiary has only one reporting unit, which is the same as the overall entity.1. For this fact set, determine whether Goodwill is impaired.2. Prepare the required journal entry if you determine Goodwill is impaired.

Answer 1

Answer:

The impairment amount will be "$504,000". A further explanation is below.

Explanation:

The given values are:

Goodwill,

= $864,000

Subsidiary fair value,

= $8,100,000

Subsidiary's individually identifiable net assets,

= $7,740,000

Now,

(1)

The impairment amount will be:

= $Goodwill-(Subsidiary \ fair \ value-Identifiable \ net \ assets)$

On substituting the values, we get

= $864,000 - (8,100,000- 7,740,000)$

= $864,000-360,000$

= $504,000$ ($)

(2)

The journal entry is:

Description                                  Debit                       Credit

Equity income                          $504,000

Equity investment                                                  $504,000