During 2009, Lexie, Inc. acquired Lena, Inc. for $10,000,000. The fair market va

Question

During 2009, Lexie, Inc. acquired Lena, Inc. for $10,000,000. The fair market value of the net assets of Lena, Inc. was $8,500,000 on the date of purchase. During 2012, Lexie, Inc. determined the goodwill resulting from the Lena acquisition was impaired and had a value of $1,000,000.

a. Determine the amount of goodwill implied during 2009.
$

b. Illustrate the effects on the accounts and the financial statements of the amortization for 2012.
Assets = Liabilities + Stockholders' Equity
Cash Goodwill Capital Stock Retained Earnings

Statement of Cash Flows Income Statement

Explanation / Answer

During 2009, Lexie, Inc. acquired Lena, Inc. for $10,000,000. The fair market value of the net assets of Lena, Inc. was $8,500,000 on the date of purchase. During 2012, Lexie, Inc. determined the goodwill resulting from the Lena acquisition was impaired and had a value of $1,000,000.

a. Determine the amount of goodwill implied during 2009.

$10,000,000 - $8,500,000 = $1,500,000 Implied Goodwill

b. Illustrate the effects on the accounts and the financial statements of the amortization for 2012.
Assets = Liabilities + Stockholders' Equity
Cash Goodwill Capital Stock Retained Earnings

Statement of Cash Flows Income Statement

(b) Cash Assets = Liabilities + Stockholders' Equity

Goodwill Capital Stock Retained Earnings -500,000 -500,000

Statement of Cash Flows Income Statement Loss on Impaired Goodwill -500,000

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