Question

Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $263,500 in cash and issued 100,000 shares of its own $1 par value common stock. On this date, Alfonso’s stock had a fair value of $15 per share. The combination is a statutory merger with BelAire subsequently dissolved as a legal corporation. BelAire’s assets and liabilities are assigned to a new reporting unit.

The following shows fair values for the BelAire reporting unit for January 1, 2020 along with respective carrying amounts on December 31, 2021.

BelAire Reporting Unit	Fair Values 1/1/20			Carrying Amounts 12/31/21
Cash	$	68,000		$	41,000
Receivables		182,500			236,000
Inventory		219,000			251,000
Patents		371,500			467,000
Customer relationships		603,500			574,000
Equipment (net)		404,500			339,000
Goodwill		?			562,000
Accounts payable		(123,500	)		(188,000	)
Long-term liabilities		(524,000	)		(452,000	)

Note: Parentheses indicate a credit balance.

1. Prepare Alfonso’s journal entry to record the assets acquired and the liabilities assumed in the BelAire merger on January 1, 2020. Note: Enter cash paid and cash received as two separate amounts.

2. On December 31, 2021, Alfonso opts to forgo any goodwill impairment qualitative assessment and estimates that the total fair value of the entire BelAire reporting unit is $1,335,000. What amount of goodwill impairment, if any, should Alfonso recognize on its 2021 income statement?

Answer 1

Journal entries
Date	General Journal	Debit	Credit
Jan 1 2020	Cash	68000
	Receivables	182500
	Inventory	219000
	Patents	371500
	Customer Relations	603500
	Equipment (net)	404500
	Goodwill	562000
	Accounts payable		123500
	Long term liabilities		524000
	Cash		263500
	common stock (Face value)		100000
	Additional Paid in capital		1400000
Calculations
1	Good will
	Particulars	Amount	Workings
	Cash paid	263500
	Fair value of shares issued	1500000	(100000*$15 per share)
	Consideration transferred	1763500	(263500+1500000)
	Fair value of net asset acquired	1201500	(68000+182500+219000+371500+603500+404500-123500-524000)
	Good will	562000	(1763500-1201500)
2	Common stock	100000	(100000*$1 par value)
3	Additional Paid in capital	1400000	(68000+182500+219000+371500+603500+404500+562000-123500-524000-100000-263500)

...

Good will Impairment

Total Fair value of entire BelAire Unit= 1,335,000

Fair value reporting of net assets as oin 31/12/2021 = 41000+235000+251000+467000+574000+379000-188000-452000)

=1307000

Impaired fair value of goodwill = 1335000-1307000 =28000

Book Value of Goodwill = 562000

Good will impairment loss = (28000-562000) = $(534000)