Question

1. A company reports $11.2 million in goodwill and decides to quantitatively test it for impairment at the end of 2020. The following information is collected: Division 1 Division 2 Division 3 Book value of goodwill $ 7,000,000 $ 200,000 $ 4,000,000 Fair value of division 40,000,000 6,000,000 20,000,000 Book value of division 45,000,000 6,500,000 21,000,000 2. What is the amount of goodwill impairment loss for 2020, following U.S. GAAP? A. $ 6,200,000 B. $ 6,500,000 C. $11,200,000 D. $ 6,000,000

Answer 1

Answer:

B. $ 6,500,000

Explanation:

The goodwill impairment loss for the year 2020 shall be determined through the following mentioned equation:

Goodwill impairment loss=Book value of all the divisions-Fair Value of all the divisions

Book value of all the divisions=$45,000,000+$6,500,000+$21,000,000

                                                   =$72,500,000

Fair value of all the divisions= $40,000,000+$6,000,000+$20,000,000

                                                 =$66,000,000

Goodwill impairment loss=$72,500,000-$66,000,000

                                           =$6,500,000

So based on the above discussion, the answer is B. $ 6,500,000