In performing the impairment test for goodwill, the company had the following 2016 and 2017 information available.
$\begin{array}{lll}
&2016&2017\
\text { Fair value of the reporting unit } & \$ 350,000 & \$ 400,000 \
\text { Net book value (including } \$ 50,000 \text { goodwill) } & \$ 360,000 & \$ 380,000
\end{array}$
Assume that the carrying value of the identifiable assets are a reasonable approximation of their fair values.Based upon this information what are the 2016 and 2017 adjustment to goodwill, if any
$\quad $$\quad $2016$\quad $$\quad $ $\quad $$\quad $2017
A)no adjustment $\quad $$20,000 decrease
B)$10,000 increase $\quad $$20,000 decrease
C)$10,000 decrease $\quad $$20,000 decrease
D)$10,000 decrease $\quad $no adjustment

Question

In performing the impairment test for goodwill, the company had the following 2016 and 2017 information available. 
$\begin{array}{lll}
&2016&2017\
\text { Fair value of the reporting unit } & \$ 350,000 & \$ 400,000 \
\text { Net book value (including } \$ 50,000 \text { goodwill) } & \$ 360,000 & \$ 380,000
\end{array}$
 Assume that the carrying value of the identifiable assets are a reasonable approximation of their fair values.Based upon this information what are the 2016 and 2017 adjustment to goodwill, if any
$\quad $$\quad $2016$\quad $$\quad $ $\quad $$\quad $2017
A)no adjustment $\quad $$20,000 decrease
B)$10,000 increase $\quad $$20,000 decrease
C)$10,000 decrease $\quad $$20,000 decrease
D)$10,000 decrease $\quad $no adjustment

Quizplus · Accepted Answer

In order to perform the impairment test for goodwill, we need to compare the carrying value of goodwill with its implied fair value. The implied fair value of goodwill is calculated as the excess of the fair value of the reporting unit over the fair value of the identifiable net assets.

Given that the carrying value of the identifiable assets is a reasonable approximation of their fair values, we can use the following table to calculate the implied fair value of goodwill:

​2016	2017
Fair value of identifiable net assets	$270,000	$300,000
Carrying value of identifiable net assets	$270,000	$300,000
Excess of fair value of reporting unit over identifiable net assets	$30,000	$10,000
Implied fair value of goodwill	$30,000	$10,000
Carrying value of goodwill	$20,000	$20,000

We can see that the carrying value of goodwill in both years is equal to the implied fair value of goodwill, which means that there is no impairment and no adjustment is required. Therefore, the correct answer is D ($10,000 decrease no adjustment).

In Performing the Impairment Test for Goodwill, the Company Had