Ivanhoe Corporation purchased Oriole Company 3 years ago and at that time recorded goodwill of 705,600. The Division's net identifiable assets, including the goodwill, have a carrying amount of 1,176,000. The fair value of the division is estimated to be $1,078,000. Prepare Ivanhoe's journal entry, if necessary, to record the impairment of the goodwill. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit

Ivanhoe Corporation purchased Oriole Company 3 years ago and at that time recorded goodwill of 705,600. The Division’s net identifiable assets, including the goodwill, have a carrying amount of 1,176,000. The fair value of the division is estimated to be $1,078,000. Prepare Ivanhoe’s journal entry, if necessary, to record the impairment of the goodwill. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit Credit

Answer:
Debit Impairment Loss (or Loss on Goodwill Impairment) $98,000
Credit Goodwill $98,000

Explanation:
Subject: Accounting (Financial accounting — goodwill impairment).
Concepts used: goodwill impairment testing — compare carrying amount of a reporting unit (division) to its fair value; if fair value is less than carrying amount, record an impairment loss equal to the difference, limited to the carrying amount of goodwill. Here the division’s carrying amount (net identifiable assets including goodwill) is $1,176,000 and its fair value is $1,078,000, so an impairment exists. The impairment loss of $98,000 is less than the recorded goodwill ($705,600), so the loss is charged entirely to goodwill.

Steps:

  1. Compute impairment amount: carrying amount − fair value = $1,176,000 − $1,078,000 = $98,000.
  2. Compare impairment to goodwill carrying amount: $98,000 ≤ $705,600, so reduce goodwill by $98,000.
  3. Prepare journal entry:
  • Debit Impairment Loss (or Loss on Goodwill Impairment) $98,000
  • Credit Goodwill $98,000.
100% (3 rated)

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