Prepare the journal entry to record the impairment loss if

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Reference no: EM13588364

On march 31, 2014, Roseo Company paid $6,000,000 to acquire all of the common stock of Drive, Incorporated, which became a division of Rodeo. Drive reported the following balance sheet at the time of the acquisition. Current assets: $2,400,000. Non current assets $3,200,000 Current liabilities $500,000, Long term liabiliites $300,000 and Stockholders equity of $4,800,000. Total assets are $5,600,000 and Total liabilities and equity of $5,600,000. it was determined at the date of the purchase that the fair value of the identifiable net assets of Drive was $4,500,000. Over the next nine months of operations, the newly purchased division experienced operating losses. In addition, it now appears thati t will generate substantial losses for the forseeable future. At December 31, 2014, Drive reports the following balance sheet information: Current assets: $1,600,000. Non current assets (including goodwill recognized in the purchase) $3,800,000. Current liabilities -$600,000. and Long term liabilities -$400,000 net assets: $4,400,000. It is determined that the fair value of the Drive division is $4,500,000. The recorded amount for Drives's net assets (excluding goodwill) is the same as fair value, except for property, plant, and equipment, which has a fair value$100,000 above the carrying value.

A) Compute the amount of goodwill recognized, if any, on March 31, 2014.

B) Assume that the fair value of the Drive division is $4,000,000 instead of $4,500,000. Determine the impairment loss, if any, to be recorded on Dec. 31, 2014.

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

Reference no: EM13588364

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