Question

On January 1, Year 1, East Company purchased $60,000 of goodwill. On December 31, Year 4 East determined that the goodwill suffered a $25,000 permanent impairment. However, on December 31, Year 6 East estimated that it had recovered $5,000 of the impairment that had previously been considered to be a permanent impairment. Which of the following journal entries was required to recognize the impairment.

• Account Titles	Debit	Credit
  Loss on Impairment	25,000
  Goodwill		25,000

• Account Titles	Debit	Credit
  Loss on Impairment	20,000
  Goodwill		20,000

• Account Titles	Debit	Credit
  Goodwill	25,000
  Loss on Impairment		25,000

• Account Titles	Debit	Credit
  Goodwill	5,000
  Gain on Impairment Recovery		5,000

Answer 1

Account Titles	Debit	Credit
Loss on Impairment	25,000
Goodwill		25,000

Impairment loss on account of goodwill cannot be reversed. It can only be reversed in very extreme cases.