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On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information. $440,000 2,460,000 (640,000) (440,000) $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000

On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information. $440,000 2,460,000 (640,000) (440,000) $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter13: Investments And Long-term Receivables
Section: Chapter Questions
Problem 19E
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1. Determine the impairment loss, if any, to be recorded on December 31,2020

a) Assume that the fair Value of the Conchita Division is 41764000 instead of $1850000. Determine the impairment loss, if any, to be recorded on December 31,2020

b) Prepare the journal entry to record the impairment loss, if any, and indicate where loss would be reported in the income statement

On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets $440,000 2,460,000 (640,000) (440,000) It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information. $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000
Transcribed Image Text:On July 31, 2020, Wildhorse Company paid $2,800,000 to acquire all of the common stock of Conchita Incorporated, which became a division (a reporting unit) of Wildhorse. Conchita reported the following balance sheet at the time of the acquisition. Current assets Noncurrent assets Total assets $720,000 2,500,000 $3,220,000 Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities Net assets $440,000 2,460,000 (640,000) (440,000) It was determined at the date of the purchase that the fair value of the identifiable net assets of Conchita was $2,485,000. Over the next 6 months of operations, the newly purchased division experienced operating losses. In addition, it now appears that it will generate substantial losses for the foreseeable future. At December 31, 2020, Conchita reports the following balance sheet information. $1,820,000 $520,000 420,000 Finally, it is determined that the fair value of the Conchita Division is $1,850,000. 2,280,000 $3,220,000
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