Reference no: EM132757304
On May 31, 2021, Sandhill Company paid $3,850,000 to acquire all of the common stock of Wildhorse Corporation, which became a division of Sandhill. Wildhorse reported the following balance sheet at the time of the acquisition:
Current assets $990,000 Current liabilities $660,000
Noncurrent assets $2,970,000 Long-term liabilities $550,000
Total assets $3,960,000 Stockholder's equity $2,750,0
Total liabilities and stockholder's equity $3,960,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Wildhorse was $3,410,000. At December 31, 2021, Wildhorse reports the following balance sheet information:
Current assets $ 880,000
Noncurrent assets (including goodwill recognized in purchase) $2,640,000
Current liabilities ($770,000)
Long-term liabilities ($550,000)
Net assets $2,200,000
It is determined that the fair value of the Wildhorse division is $2,420,000.
Problem 1: Compute the amount of goodwill recognized, if any, on May 31, 2021.
Problem 2: Determine the impairment loss, if any, to be recorded on December 31, 2021.
Problem 3: Assume that the fair value of the Wildhorse division is $2,145,000 instead of $2,420,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2021.
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