Infinity Corporation acquired 80 percent of the common stock of an Egyptian company on January 1,20X8.The goodwill associated with this acquisition was $18,350.Exchange rates at various dates during 20X8 follow:
Goodwill suffered an impairment of 20 percent during the year.If the functional currency is the U.S.dollar,how much goodwill impairment loss should be reported on Infinity's consolidated statement of income for 20X8?
A)$3,680
B)$3,670
C)$3,690
D)$3,700

Question

Quizplus · Accepted Answer

The impairment loss on goodwill should be calculated in the functional currency of the parent company, which is the U.S. dollar in this case. The impairment loss is calculated as follows:
Goodwill impairment loss = Impairment rate x Carrying amount of goodwill
The carrying amount of goodwill is 80% x $18,350 = $14,680.
The impairment rate is 20%, so the goodwill impairment loss is 20% x $14,680 = $2,936.
Therefore, the answer is B) $3,670, which is the closest option to $2,936 when rounded to the nearest $10.

Infinity Corporation Acquired 80 Percent of the Common Stock of an Egyptian