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?
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
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from Accounting 101: Financial AccountingChapter 2 / Lesson 2