On May 31, 2004, Porter Company paid $2,100,000 to acquire all of the common stock of Dryer Corporation, which became a division of Porter Dryer reported the following balance sheet at the time of the acquisition Current assets $ 500,000 Noncurrent assets 1,800,000 Total assets $2,300,000 Current l...

a Computation of the Goodwill Good will Fair value Fair value o ...

On May 31, 2004, Porter Company paid $2,100,000 to acquire all of the common stock of Dryer

Question:

On May 31, 2004, Porter Company paid $2,100,000 to acquire all of the of Dryer Corporation, which became a division of Porter. Dryer reported the following at the time of the acquisition:
Current assets ............. $ 500,000Noncurrent assets ........... 1,800,000Total assets ............... $2,300,000Current liabilities ............. $ 400,000Long-term liabilities ............ 300,000Stockholders equity ............ 1,600,000Total liabilities and stock holders equity .... $2,300,000
It was determined at the date of the purchase that the fair value of the identifiable net assets of Dryer was $1,800,000. At December 31, 2004, Dryer reports the following information:
Current assets ........................... $ 400,000Noncurrent assets (including recognized in purchase) .... 1,600,000Current liabilities .......................... (500,000)Long-term liabilities ......................... (300,000)Net assets ......................... . $ 1,200,000
It is determined that the fair market value of the Dryer division is $1,250,000. The recorded amount for Dryer’s net assets (excluding ) is the same as fair value, except for property, plant, and equipment, which has a fair value of $150,000 above the carrying value.

Instructions (a) Compute the amount of recognized, if any, on May 31, 2004.
(b) Determine the impairment loss, if any, to be recorded on December 31, 2004.
(c) Assume that the fair value of the Dryer division is $1,100,000 instead of $1,250,000. Prepare the journal entry to record the impairment loss, if any, on December 31, 2004.

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Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...