Question

Question: Waters Corporation purchased Johnson Company 3 years ago and at that time recorded goodwill of \(400,000. The Johnson Division’s net assets, including the goodwill, have a carrying amount of \)800,000. The fair value of the division is estimated to be $1,000,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

Short answer

The debited amount is loss on impairment by $50,000 and credited amount is goodwill by $50,000.

Step-by-step solution

Step1- Explanation

The fair value of the reporting unit ($750,000) is less than the carrying value ($800,000)— an impairment has occurred. The loss is the difference between the recorded goodwill and the implied goodwill.

Step2- Journal Entry

Date	Particulars	JF	Debit	Credit
	Loss on Impairment		50,000
	Goodwill			50,000
	(Being goodwill impairment is recorded)