Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $198,000 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit. The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.

a. Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020.

b. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,325,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?

Transcribed Image Text:

Fair Values 1/1/20 Carrying Amounts 12/31/21 BelAire Reporting Unit $ 65,000 $ 40,000 Cash Receivables Inventory 203,000 235,000 250,000 550,000 275.000 Patents 531,000 Customer relationships 580,000 450,000 Equipment (net) Goodwill 215,000 335,000 ? 400,000 Accounts payable (111,000) (460,000) (275.000) (425,000) Long-term liabilities