Firm A purchased Firm B for $4,000 when B's total owners' equity was $2,000. Firm A completed the qualitative test for goodwill impairment and determined that it is more likely than not that goodwill may be impaired. B had one asset worth $500 more than the book value. One year after the purchase, Firm B's total market value had dropped to $3,200 and the market value of its net identifiable assets was $2,000. What amount of goodwill impairment loss is recorded?

A. $0

B. $800

C. $400

D. $300

Question

Business

Kelly Prince

23 March, 05:45

Firm A purchased Firm B for $4,000 when B's total owners' equity was $2,000. Firm A completed the qualitative test for goodwill impairment and determined that it is more likely than not that goodwill may be impaired. B had one asset worth $500 more than the book value. One year after the purchase, Firm B's total market value had dropped to $3,200 and the market value of its net identifiable assets was $2,000. What amount of goodwill impairment loss is recorded?

A. $0

B. $800

C. $400

D. $300

+2

Answers (1)

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Aria Potter · Answer 1

D. $300

Explanation:

The goodwill is computed below:

Carrying value = Purchase price - Total owners equity - excess value of an assets

= $4,000 - $2,000 - $500

= $1,500

The implied value = Total market value - market value of its net identifiable assets

= $3,200 - $2,000

= $1,200

So, the difference is

= $1,500 - $1,200

= $300

The difference is term as a goodwill