Reference no: EM132589920
On May 31, 2018, Armstrong Company paid $3,500,000 to acquire all of the common stock of Hall Corporation, which became a division of Armstrong. Hall reported the following balance sheet at the time of the acquisition:
Current assets$ 900,000
Current liabilities$ 600,000
Noncurrent assets2,700,000
Long-term liabilities500,000
Stockholder's equity2,500,000
Total assets$3,600,000
Total liabilities and stockholder's equity$3,600,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Hall was $3,100,000. At December 31, 2018, Hall reports the following balance sheet information:
Current assets$ 800,000
Noncurrent assets (including goodwill recognized in purchase)2,400,000
Current liabilities(700,000)
Long-term liabilities(500,000)
Net assets$2,000,000
It is determined that the fair value of the Hall division is $2,200,000. The recorded amount for Hall's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value of $200,000 above the carrying value.
Question 1: Compute the amount of goodwill recognized, if any, on May 31, 2018.
Question 2: Determine the impairment loss, if any, to be recorded on December 31, 2018.
Question 3: Assume that the fair value of the Hall division is $1,950,000 instead of $2,200,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2018. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)