Reference no: EM132608357

Question - On July 31, 2020, Sunland Company paid $2,850,000 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 $750,000

Current liabilities $560,000

Noncurrent assets 2,550,000

Long-term liabilities 460,000

Total assets $3,300,000

Stockholders' equity 2,280,000

Total liabilities and stockholders' equity $3,300,000

It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,500,000. 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 $460,000

Noncurrent assets (including goodwill recognized in purchase) 2,180,000

Current liabilities (620,000)

Long-term liabilities (420,000)

Net assets $1,600,000

Finally, it is determined that the fair value of the Conchita Division is $1,850,000.

Compute the amount of goodwill recognized, if any, on July 31, 2020

Determine the impairment loss, if any, to be recorded on December 31, 2020.

Assume that fair value of the Conchita Division is $1,538,000 instead of $1,850,000. Determine the impairment loss, if any, to be recorded on December 31, 2020

Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement.