1 answer

Kirby Corporation has three divisions. It purchased one division, Pritt Products, four years ago for $2...

Question:

Kirby Corporation has three divisions. It purchased one division, Pritt Products, four years ago for $2 million. Unfortunately, Pritt experienced operating losses over the last three quarters. Kirby management is now reviewing the division for purposes of recognizing an impairment. The carrying value of Pritt Division’s net assets, including the associated goodwill is presented below:

Assets

Fair Value

Cash

$200,000

Accounts receivable

300,000

Inventory

700,000

PPE (net)

800,000

Goodwill

900,000

Liabilities

(500,000)

Fair value of net assets

$2,400,000

Kirby determines the fair value of Pritt Division at the time of the impairment analysis is $1,900,000.The fair value and carrying value of the assets are the same.

Write the journal entry to record any impairment loss (if any).

Date

Account

Debit

Credit


Answers

Solution:

Since the reasonable estimation of pritt division at the season of the impairment examination is $1,900,000 which is lower than the conveying estimation of $2,400,000, there is a impairment loss of $500,000.

Thus, a impairment loss of $500,000 should be accounted against Goodwill.

Account titles and explanation Debit($) Credit($)
Impairment loss A/c Dr ($2,400,000-$1,900,000) $500,000
To Goodwill A/c $500,000
(To record patent amortization for 2014)
.

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