_____ On 1/4/04, Porbax acquired 100% of the common stock of Sorbax at a purchase price that resulted in $75 million of goodwill. Porbax had high expectations for Sorbax's newly developed products. Sorbax's level of profits for 2004 through 2006, however, has not come anywhere close to expectations. Porbax's management now believes that the $75 million of goodwill (a material amount) is unrecoverable. Management
A) May continue to report the goodwill as an asset to be amortized against future earnings.
B) Must write off the goodwill and report the charge as an extraordinary item, if material.
C) Must write off the goodwill and report the charge in the current income statement but not as an extraordinary item.
D) Must write off the goodwill and report the charge as a prior period correction.
E) Must report the goodwill as a separate item in stockholders' equity labeled Unrealized Loss on Securities Investment.

Question

Quizplus · Accepted Answer

Goodwill is not amortized but is tested annually for impairment. If deemed unrecoverable, the impairment loss is recognized in the current income statement but not as an extraordinary item, as accounting standards do not classify such impairments as extraordinary.

_____ on 1/4/04, Porbax Acquired 100% of the Common Stock