Question

General Products Company bought Special Products Division in 2014 and appropriately recorded $750,000 of goodwill related to the purchase. On December 31, 2015, the fair value of Special Products Division is $6,000,000 and it is carried on General Product's books for a total of $5,100,000, including the goodwill. An analysis of Special Products Division's assets indicates that goodwill of $600,000 exists on December 31, 2015. What goodwill impairment should be recognized by General Products in 2015?

a. $75,000.
b. $300,000.
c. $450,000.
d. $0.

Answer 1

Answer:

D

Explanation:

Excess goodwill = Actual value - Existing value = 750,000 - 600,000 = 150,000

Amount to be recognized = [Value recorded - Existing value]/[Fair value - Total value] = [750,000 - 600,000]/[6,000,000 - 5,100,000] = 150,000/900,000 = 0.16 which is close to 0

Therefore, goodwill impairment that should be recognized by General Products in 2015 is 0