Testing Goodwill for Impairment At a postacquisition impairment evaluation date, the following information exists for an acquired subsidiary that is a reporting unit:

Book Value Fair Value Recognized Goodwill Tangible net

.

intangible assets .

assets .

Unrecognized intangible assets (two internally developed patents)

$500,000 $520,000 200,000 250,000 290,000 100,000

$990,000 The reporting unit’s estimated fair value (determined by discounting estimated future cash inflows) is $900,000.

1. What is the implied fair value of goodwill?

2. What is the impairment loss to be recognized, if any?

3. Prepare the appropriate adjusting entry, if necessary. (Assume that the parent

(a) had acquired common stock and

(b) uses non-push-down accounting.)

4. If an impairment evaluation is performed one year later and goodwill’s implied fair value is

$300,000 at that date, what adjusting entry would be made?

5. Repeat requirements 1, 2, and 3, but assume that the reporting unifs fair value is $1,000,000.

Exercises for Partially Owned Subsidiaries