(TCO C) General Products Company bought Special Products Division in 2010 and ap
ID: 2492590 • Letter: #
Question
(TCO C) General Products Company bought Special Products Division in 2010 and appropriately recorded $500,000 of goodwill related to the purchase. On December 31, 2011, the fair value of Special Products Division is $4,000,000 and it is carried on General Products’ books for a total of $3,400,000, including the goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $400,000 exists on December 31, 2011. What goodwill impairment should be recognized by General Products in 2011? (Points : 5)
$0
$200,000
$50,000
$300,000
Explanation / Answer
Impairment occurs when something bad happens to a business, which causes the market value (Fair Value) of it's assets to decline below the book value. When this happens, Goodwill needs to be reduced by the amount the market value falls below the book value
In this given question, Fair Value (As on 31 Dec,2011) = $ 4,000,000
Book Value (As on 31 Dec,2011)= $3,400,000
Since, Fair Value > Book Value, thus, there is no need for impairment of Goodwill.
Conclusion = OPtion 1 is correct i.e $0.
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