Wilbur Company acquired Smith Company on January 1, 2011. As part of the acquisition, $1,000,000 in goodwill was recognized and assigned to Wilbur's Transportation reporting unit. For 2011, earnings from the Transportation reporting unit were $450,000. Separately traded companies with operations similar to the Transportation reporting unit had market values approximately equal to five times earnings. As of December 31, 2011, book values and fair values of the Transportation reporting unit were:

Prepare the impairment test of goodwill as well as any entry needed to record an impairment loss.

Question

Wilbur Company acquired Smith Company on January 1, 2011. As part of the acquisition, $1,000,000 in goodwill was recognized and assigned to Wilbur's Transportation reporting unit. For 2011, earnings from the Transportation reporting unit were $450,000. Separately traded companies with operations similar to the Transportation reporting unit had market values approximately equal to five times earnings. As of December 31, 2011, book values and fair values of the Transportation reporting unit were:
  
Prepare the impairment test of goodwill as well as any entry needed to record an impairment loss.

Quizplus · Accepted Answer

The Answer of Wilbur Company acquired Smith Company on January 1, 2011. As part of the acquisition, $1,000,000 in goodwill was recognized and assigned to Wilbur's Transportation reporting unit. For 2011, earnings from the Transportation reporting unit were $450,000. Separately traded companies with operations similar to the Transportation reporting unit had market values approximately equal to five times earnings. As of December 31, 2011, book values and fair values of the Transportation reporting unit were:
  
Prepare the impairment test of goodwill as well as any entry needed to record an impairment loss.

Wilbur Company Acquired Smith Company on January 1, 2011