Question

1. Goodwill Impairment

Presented below is net asset information related to the Carlos Division of Santana, Inc.

CARLOS DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017
(IN MILLIONS)

Cash                                                                $ 50
Accounts receivable                                       200
Property, plant, and equipment (net)           2,600
Goodwill                                                         200
Less: Notes payable                                     (2,700)
Net assets                                                      $ 350

The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $400 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.

Instructions

Prepare the journal entry (if any) to record the impairment at December 31, 2017.

Fair value of division                                                    $335,000,000
Carrying amount of division, net of goodwill              150,000,000
Implied value of goodwill                                             185,000,000
Carrying value of goodwill                                           (200,000,000)
Loss on impairment                                                       $ 15,000,000

Loss on Impairment                   15,000,000     

                           Goodwill                                 15,000,000

CAN SOMEONE EXPLAIN HOW WE GET THIS ANSWER PLEASE. (each process)

Answer 1