Question

In​ 2018, a company purchased a small business for​ $250,000. The market value of the small​ business's assets was​ $400,000, and the market value of the liabilities was​ $200,000. The company recorded goodwill of​ $50,000 at the time of acquisition. At the end of​ 2019, it measured goodwill and found it had a remaining fair value of only​ $20,000. At​ year-end 2019, the company will​ ________.

a. record a gain in goodwill
b. record an impairment loss
c. record accumulated depletion
d. record a loss on sale of assets

Answer 1

Answer:

Option (b) record an impairment loss

Explanation:

Data provided in the question:

Cost of the business purchased = $250,000

Market value of the business assets = $400,000

Market value of the liabilities = $200,000

Recorded goodwill of the company = $50,000

Remaining fair value at the end of the year = $20,000

Now,

From the given data in the question, we can observe that the remaining fair value at the end of the year is less than the recorded goodwill of the company at the time of acquisition

Thus,

The company will record an impairment loss

Hence,

Option (b) record an impairment loss