Loren Company's balance sheet shows a trade name acquired as part of a business combination with a carrying value of $30 million.The trade name has an indefinite life and therefore Loren does not amortize it.Negative publicity regarding the product carrying the trade name has reduced its fair value to $24 million and its value in use to $22 million.The entry is as follows:
A)Loss on Impairment ...................................8,000,000
Trade Name ..............................................8,000,000

B)Loss on Impairment ...................................6,000,000
Trade Name ..............................................6,000,000

C)Loss on Impairment ...................................4,000,000
Trade Name ..............................................4,000,000

D)Trade Name ........................................6,000,000
Loss on Impairment ........................................6,000,000

E)Trade Name ........................................8,000,000
Loss on Impairment ........................................8,000,000

Question

Loren Company's balance sheet shows a trade name acquired as part of a business combination with a carrying value of $30 million.The trade name has an indefinite life and therefore Loren does not amortize it.Negative publicity regarding the product carrying the trade name has reduced its fair value to $24 million and its value in use to $22 million.The entry is as follows:
A)Loss on Impairment ...................................8,000,000 
Trade Name ..............................................8,000,000

B)Loss on Impairment ...................................6,000,000 
Trade Name ..............................................6,000,000

C)Loss on Impairment ...................................4,000,000 
Trade Name ..............................................4,000,000

D)Trade Name ........................................6,000,000 
Loss on Impairment ........................................6,000,000

E)Trade Name ........................................8,000,000 
Loss on Impairment ........................................8,000,000

Quizplus · Accepted Answer

The entry should reflect the loss on impairment of the trade name. The difference between the carrying value of $30 million and the fair value of $24 million is $6 million, which represents the loss on impairment. Therefore, option B is the correct choice. Option A and E overstate the amount of the loss, while option C understates it. Option D is incorrect because it does not follow the correct accounting treatment for impairment losses.

Loren Company's Balance Sheet Shows a Trade Name Acquired as Part