Jenks Corporation acquired Linebrink Products on January 1, 2015 for $8,000,000, and recorded goodwill of $1,500,000 as a result of that purchase. At December 31, 2015, Linebrink Products had a fair value of $6,800,000. The net identifiable assets of the Linebrink (excluding goodwill) had a fair value of $5,800,000 at that time. What amount of loss on impairment of goodwill should Jenks record in 2015?
A) $ -0-
B) $500,000
C) $700,000
D) $1,200,000

Question

Quizplus · Accepted Answer

The loss on impairment of goodwill is calculated by comparing the carrying amount of goodwill to the implied fair value of goodwill. The implied fair value of goodwill is determined by subtracting the fair value of the net identifiable assets from the fair value of the acquired unit. In this case, the fair value of Linebrink Products is $6,800,000 and the fair value of the net identifiable assets is $5,800,000, leaving an implied fair value of goodwill of $1,000,000 ($6,800,000 - $5,800,000). Since the carrying amount of goodwill is $1,500,000, the impairment loss is $500,000 ($1,500,000 - $1,000,000).

Jenks Corporation Acquired Linebrink Products on January 1, 2015 for $8,000,000