AC 302 CHAPTER 12 QUESTION 5

AC 302 CHAPTER 12 QUESTION 5
Name				Date		
Instructor				Course		
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield						
Primer on Using Excel in Accounting by Rex A Schildhouse						
						
P12-5 (Goodwill, Impairment) On July 31, 2012, Mexico Company paid						$3,000,000 
to acquire all of the common stock of Conchita Incorporated, which became a division of Mexico. Conchita reported the following balance sheet at the time of the acquisition.						
						
Current assets		$800,000 	Current liabilities			$600,000 
Noncurrent assets		$2,700,000 	Long-term liabilities			$500,000 
Total assets		$3,500,000 	Stockholders’ equity			$2,400,000 
			Total liabilities and stockholders’ equity			$3,500,000 
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was						
$2,750,000 	Over the next 6 months of operations, the newly purchased division experienced operating 					
losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2012, Conchita reports the following balance sheet information.						
						
Current assets					$450,000 	
Noncurrent assets (including goodwill recognized in purchase)					$2,400,000 	
Current liabilities					($700,000)	
Long-term liabilities					($500,000)	
Net assets					$1,650,000 	
It is determined that the fair value of the Conchita Division is					$1,850,000 	The recorded 
amount for Conchita- net assets (excluding goodwill) is the same as fair value, except for property, plant, 						
and equipment, which has a fair value			$150,000 	above the carrying value.		
						
Instructions:						
(a) Compute the amount of goodwill recognized, if any, on July 31, 2012.						
						
Text as appropriate.						
	Amount	 -	Amount	 =	Formula	
						
(b) Determine the impairment loss, if any, to be recorded on December 31, 2012.						
						
Enter text answer here.						
						
						
						
						
(c) Assume that fair value of the Conchita Division is				$1,600,000 	instead of	$1,850,000 
Determine the impairment loss, if any, to be recorded on December 31, 2012.						
						
Enter text as appropriate.						
						
	Text title				Amount	
	Text title			Amount		
	Text title			Amount		
	Less: Account title			Amount		
					Formula	
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"(d) Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be
     reported in the income statement."						
						
						
	Account title			Amount		
	Account title				Amount	
						
Enter text answer here.