ACCT 3110 Ch 12 Quiz Spring 2016 Night Name ______ SOLUTION __________________________

1. On July 1, 2014, Parent Corp. purchased Target Co. by paying $450,000 cash and issuing a $100,000 note
payable to Target shareholders. At July 1, 2014, the balance sheet of Target Co. was as follows:
Cash $5,000 Accounts payable $200,000
Accounts receivable 90,000 Stockholders equity 235,000
Inventory 100,000
Land 40,000
Buildings (net) 75,000
Equipment (net) 70,000
Trademarks 10,000
$435,000 $435,000

The recorded amounts all approximate current values except for land (fair value $160,000), inventory (fair
value $125,000) and trademarks (fair value $15,000).

Prepare the July 2 entry for Parent Corp. to record the purchase.

Cash 5,000
Accounts receivable 90,000
Inventory 125,000
Land 160,000
Building 75,000
Equipment 70,000
Trademark 15,000
Goodwill 210,000 plug
Acct. payable 200,000
Cash 450,000
Note payable 100,000

2. Suppose Parent Corp. has an investment in Sub Corp. The fair value of Sub Corp. is $25,000,000, the
carrying amount is $28,000,000, including goodwill of $10,000,000. Perform the two-step impairment test. Be
sure to show each step in detail, providing explanations as necessary. Given the journal entry, if any, if there is
an impairment.

1. FMV of $25,000,000 is less than book value of $28,000,000. Fails part 1 of test.

2. FMV 25,000,000
Carrying value other than goodwill 18,000,000
Implied goodwill 7,000,000
Goodwill on the books 10,000,000
Goodwill write down 3,000,000

Loss on goodwill impairment 3,000,000

Goodwill 3,000,000