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On January 1 of the current year, Engel Company purchases 100% of Ball Company for $8.4 million....

Question:

On January 1 of the current year, Engel Company purchases 100% of Ball Company for $8.4 million. At the time of the acquisition, the fair value of Ball's tangible net assets (excluding goodwill) is $8.1 million. Engle ascribes the excess of $300,000 to goodwill. Assume that the fair value of Ball declines to $6.25 million and that the fair value of Ball's tangible net assets is estimated at $6.15 million as of December 31.

a. Determine if the goodwill has become impaired and. if so. the amount of the impairment.

b. What impact does the impairment of goodwill have on Engel's financial statements?

Income Statement:

The income statement has the details of the profit, losses, revenue, gains etc. The income statement shows how much profit the company has generated and what were the source of expenditures and gains.

Answer and Explanation:

(a) Original Goodwill value = $300,000

Current goodwill value = $6,250,000 - $6,150,000 = $100,000

Impairment of goodwill = $300,000 - $100,000 = $200,000

(b) The goodwill would be reduced in a financial statement by 200,000 and would be charged to the income statement


Learn more about this topic:

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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
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