Twilight Corporation acquired End-of-the-World Products on January 1, 2014 for $6,400,000, and recorded goodwill of $1,200,000 as a result of that purchase. At December 31, 2015, the End-of-the-World Products Division had a fair value of $5,440,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $4,640,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2015?
A) $ -0-
B) $400,000
C) $560,000
D) $960,000

Question

Quizplus · Accepted Answer

The loss on impairment of goodwill is calculated by comparing the carrying amount of the goodwill to the implied fair value of the goodwill. The carrying amount of the goodwill is $1,200,000. The implied fair value of the goodwill is determined by subtracting the fair value of the net identifiable assets ($4,640,000) from the fair value of the division ($5,440,000), which equals $800,000. Therefore, the impairment loss is the difference between the carrying amount and the implied fair value: $1,200,000 - $800,000 = $400,000.

Twilight Corporation Acquired End-Of-The-World Products on January 1, 2014 for $6,400,000