Question

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Short answer

Debited loss on Impairment by $50,000 and credited Goodwill by $50,000.

Step-by-step solution

Step-by-Step SolutionStep 1: Calculation

$$\begin{gathered} \mathbf{Loss}\mathbf{}\mathbf{on}\mathbf{}\mathbf{Impairment}\mathbf{=}\mathbf{Recorded}\mathbf{}\mathbf{Amount}\mathbf{-}\mathbf{Implied}\mathbf{}\mathbf{Amount} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{350}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{50}\mathbf{,}\mathbf{000} \end{gathered}$$

The reporting unit’s fair value ($750,000) is less than its carrying value ($800,000), indicating an impairment. The loss is the difference between the $400,000 in recorded goodwill and the $350,000 in implied goodwill.

Journal Entry

Date	Particulars	Debit	Credit
	Loss on Impairment ($400,000 - $350,000)	$50,000
	Goodwill		$50,000
	(Being loss on impairment is recorded)