Impairment of Goodwill
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Largest Company acquired Large Company on January 1. As part of the acquisition, $10,000 in goodwill was recognized;
this goodwill was assigned to Largest's Production report unit. During the year, the Production reporting unit reported revenues of $13,000. Publicly traded companies with operations similar to those of the Production unit had price-to-revenue ratios averaging 1.60.
The fair values and book values of the assets and liabilities of the Production reporting unit are as follows:
Identifiable assets...............$21,300 book value $20,500 fair values
Goodwill.....................$10,000 book value $?? fair value
Liabilities.........................$7,600 $7,600 fair values
Make the journal entry necessary to recognize any goodwill impairment loss.
Please provide details.
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Solution Summary
The impairment of Goodwill is examined.
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Goodwill impairment testing:
Step 1. Compare the fair value of the reporting unit to its book value
The fair value of the production reporting unit=reported revenue*Price-to-revenue ...
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