Reference no: EM132632368
Question - On July 31, 2020, Sunland Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Sunland. Conchita reported the following balance sheet at the time of the acquisition.
Current assets $720,000 Current liabilities $510,000
Noncurrent assets 2,500,000 Long-term liabilities 410,000
Total assets $3,220,000 Stockholders' equity 2,300,000
Total liabilities and stockholders' equity $3,220,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,550,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information.
Current assets $400,000
Noncurrent assets (including goodwill recognized in purchase) 2,330,000
Current liabilities (700,000)
Long-term liabilities (500,000)
Net assets $1,530,000
Finally, it is determined that the fair value of the Conchita Division is $1,850,000.
Required -
(a) Compute the amount of goodwill recognized, if any, on July 31, 2020.
(b) Determine the impairment loss, if any, to be recorded on December 31, 2020.
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