>> Accounting Basics
Palmer, owner of Palmer Interiors, is negotiating for the purchase of Ruth Inc. The balance sheet of Ruth Inc. is given in an abbreviated form, as follows.
AS OF DECEMBER 31, 2014
Assets Liabilities and Stockholders' Equity
Cash $ 240,000 Accounts payable $ 120,000
Land 168,000 Long-term notes payable 720,000
Building (net) 480,000 Total liabilities 840,000
Equipment (net) 420,000 Common stock $480,000
Copyright (net) 72,000 Retained earnings 60,000
Total assets $1,380,000 Total liabilities and stockholders' equity $1,380,000
Palmer and Ruth agree that:
1. Land is undervalued by $72,000.
2. Equipment is overvalued by $12,000.
Ruth agrees to sell the business to Palmer for $840,000.
(1) Prepare the entry to record the purchase of Ruth Inc. on Palmer's books.
(2) At the end of 2015, Palmer determines that the net assets of Ruth, now a division of his company, are 600,000. Palmer also determines that the fair value of Ruth division is 500,000. Should Palmer consider any goodwill impairment? If yes, what's the impairment loss? (Assume all identifiable assets' and liabilities' book and fair value amounts are the same).