_____ On 1/5/05, Pazco acquired 100% of Sazco's common stock at a purchase price that resulted in $60 million of goodwill. At 12/31/06 (two years later), management concluded that the goodwill of $60 million (a material amount) was unrecoverable. For the past two years, Sazco reported losses. How should the $60 million be reported in the 2006 financial statements?
A) As an asset that will continue to be amortized to the income statement (unless the subsidiary is sold).
B) As a prior period correction (reducing beginning retained earnings).
C) As an extraordinary item in the income statement.
D) As a separate line item in the income statement that is not designated as being an extraordinary item.
E) As a separate item in stockholders' equity labeled Unrealized Loss on Securities Investment.

Question

Quizplus · Accepted Answer

Goodwill impairment, such as the $60 million unrecoverable amount in this scenario, should be reported as a separate line item in the income statement. It is not considered an extraordinary item, amortized, a prior period correction, or reported in stockholders' equity as an unrealized loss on securities investment.

_____ on 1/5/05, Pazco Acquired 100% of Sazco's Common Stock