Prossart Company owned 70% of the outstanding stock of Say Company.During the annual goodwill impairment test, the following information pertaining to Say was noted:
$$\begin{array} { l r }
\text { Book value of net assets } & \$ 2,000,000 \
\text { Fair value of Say Company } & 1,800,000 \
\text { Estimated fair value of net identifiable assets } & 1,700,000 \
\text { Recorded goodwill } & 200,000
\end{array}$$ The amount of goodwill impairment loss that would be recorded on Prossart's books would be:
A)$200,000
B)$140,000
C)$100,000
D)$70,000

Question

Prossart Company owned 70% of the outstanding stock of Say Company.During the annual goodwill impairment test, the following information pertaining to Say was noted: 
$$\begin{array} { l r } 
\text { Book value of net assets } & \$ 2,000,000 \
\text { Fair value of Say Company } & 1,800,000 \
\text { Estimated fair value of net identifiable assets } & 1,700,000 \
\text { Recorded goodwill } & 200,000
\end{array}$$ The amount of goodwill impairment loss that would be recorded on Prossart's books would be:
A)$200,000
B)$140,000
C)$100,000
D)$70,000

Quizplus · Accepted Answer

The goodwill impairment loss is calculated as the excess of the carrying amount of goodwill over the fair value of the reporting unit less the fair value of net identifiable assets. Here, the carrying amount of goodwill is $200,000. The fair value of Say Company is $1,800,000, and the fair value of net identifiable assets is $1,700,000. The implied fair value of goodwill is $1,800,000 - $1,700,000 = $100,000. Therefore, the impairment loss is $200,000 - $100,000 = $100,000. However, since Prossart owns 70% of Say, the impairment loss recorded on Prossart's books would be 70% of $100,000, which is $70,000.

Prossart Company Owned 70% of the Outstanding Stock of Say