While performing a goodwill impairment test, the company had the following information:
$\begin{array}{llr}
\text {Estimated implied fair value of reporting unit } &\$420,000\
\text {Fair value of net assets on date of measurement (without goodwill) } &\$ 400,000 \
\text { Existing net book value of reporting unit (without goodwill)} & \$ 380,000\
\text { Book value of goodwill} & \$ 60,000\
\end{array}$

Based upon this information the proper conclusion is:
A)The company should recognize a goodwill impairment loss of $20,000.
B)Goodwill is not impaired.
C)The company should recognize a goodwill impairment loss of $40,000.
D)The company should recognize a goodwill impairment loss of $60,000.

Question

While performing a goodwill impairment test, the company had the following information:
$\begin{array}{llr}
  \text {Estimated implied fair value of reporting unit  } &\$420,000\
 \text {Fair value of net assets on date of measurement (without goodwill)  } &\$ 400,000 \
 \text {  Existing net book value of reporting unit (without goodwill)} & \$ 380,000\
 \text {  Book value of goodwill} & \$ 60,000\
\end{array}$

Based upon this information the proper conclusion is:
A)The company should recognize a goodwill impairment loss of $20,000.
B)Goodwill is not impaired.
C)The company should recognize a goodwill impairment loss of $40,000.
D)The company should recognize a goodwill impairment loss of $60,000.

Quizplus · Accepted Answer

The carrying amount of the reporting unit is $500,000 ($400,000 + $100,000). The fair value of the reporting unit is $460,000. The implied fair value of goodwill is $60,000 ($460,000 - $400,000). The carrying amount of goodwill is $100,000. Since the carrying amount of goodwill exceeds its implied fair value, the company should recognize a goodwill impairment loss of $40,000 ($100,000 - $60,000). Therefore, Choice C is the correct answer.

While Performing a Goodwill Impairment Test, the Company Had the Following