ExpertMedium1 markMultiple Choice
CPA · Question 23 · Area II: Technical Accounting
On December 31, Year 1, Parent Inc. tests its reporting unit 'Sub A' for goodwill impairment. <br/>- Carrying amount of Sub A (including goodwill): $2,500,000<br/>- Carrying amount of Goodwill: $600,000<br/>- Fair value of Sub A: $2,100,000<br/><br/>Under ASC 350, what amount of goodwill impairment loss should Parent Inc. recognize?
On December 31, Year 1, Parent Inc. tests its reporting unit 'Sub A' for goodwill impairment. <br/>- Carrying amount of Sub A (including goodwill): $2,500,000<br/>- Carrying amount of Goodwill: $600,000<br/>- Fair value of Sub A: $2,100,000<br/><br/>Under ASC 350, what amount of goodwill impairment loss should Parent Inc. recognize?
Answer options:
A.
$0
B.
$200,000
C.
$400,000
D.
$600,000
How to approach this question
Compare Carrying Amount of Reporting Unit to Fair Value. If CA > FV, the difference is the impairment (capped at the Goodwill amount).
Full Answer
C.$400,000✓ Correct
C
Under current GAAP (ASC 350), goodwill impairment is measured as the amount by which the carrying amount of a reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit.<br/>Excess = $2,500,000 - $2,100,000 = $400,000.<br/>Since $400,000 < $600,000 (Total Goodwill), the loss is $400,000.
Common mistakes
Using the old two-step method (implied fair value of goodwill).
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