Answer the following questions based on this information set; XYZ, Inc. purchased an advertising firm 3
Question:
Answer the following questions based on this information set;
• XYZ, Inc. purchased an advertising firm 3 years ago that it runs as a separate division. The current carrying value of the advertising division’s assets and liabilities, including the original amount of goodwill recognize are: Cash $15,000 Accounts receivable 45,000 Property, Plant, and Equipment 750,000 Goodwill 340,000 Accounts and other payables 35,000 Long-term debt 125,000
• Because the division has been poorly managed and lost some major clients, XYZ believes that the current fair market value of the firm is $650,000.
a). Should it impair the goodwill and why (just provide a yes or no answer and you justification).
b). Regardless of your answer in a) assume that it did determine that it should impair the asset, what would be the amount of the loss and what would be the journal entry to record the loss? Explain your calculation of the loss amount.