On June 30, 2015, P Company paid $5,750,000 to acquire

$8.00

Description

On June 30, 2015, P Company paid $5,750,000 to acquire all of the common stock of S Corporation, which became a division of P Company. S Corporation reported the following balance sheet at the time of the acquisition:

Current Assets $900,000 Current Liabilities $600,000
Noncurrent Assets $3,700,000 Long-term Liabilities $1,500,000
Stockholders’ Equity $2,500,000
Total Assets $4,600,000 Total Liabilities and Stockholders’ Equity $4,600,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of S Corporation was $4,800,000.

(a) Compute the amount of goodwill recognized, if any, on May 31, 2015.

At December 31, 2015, S Corporation reports the following balance sheet information:

Current Assets $800,000
Noncurrent Assets (including goodwill recognized in purchase) $3,400,000
Current Liabilities $700,000
Long-term Liabilities $1,500,000
Net Assets $2,000,000

  • Management determined that the fair value of the S corporation division is $1,050,000.
  • The recorded amount for S Corporation’s net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value of $200,000 above the carrying value.

(b) Determine the impairment loss, if any, to be recorded on December 31, 2015.

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