Company a Purchased 90% Interest in Company B in 2016

question 21

Essay

Company A purchased 90% interest in Company B in 2016 with total subsidiary goodwill of $135,000.Assume the investment amount exceeded the fair value of the subsidiary with the subsidiary book value based on acquisition date, amortized balances on December 31, 2019 of $1,000,000.The estimated fair value of Company B of $1,035,000 and the estimated fair value of net identifiable assets of $1,000,000.What is the impairment entry on Company A's books?
a.Debit Goodwill Impairment Loss and Credit Investment in Company B for $35,000
b.Debit Goodwill Impairment Loss and Credit Investment in Company A for $35,000
c.Debit Goodwill Impairment Loss and Credit Investment in Company B for $31,500
d.Debit Goodwill Impairment Loss and Credit Investment in Company B for $90,000

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Definitions:

Profit-Maximizing Entrepreneur

An individual or business that adjusts the combination of production inputs and outputs to achieve the highest possible profit.

Investment Project

A planned undertaking aimed at achieving specific financial returns through the allocation of resources to productive activities.

Interest Rate

The proportion of a total amount of money that is levied for borrowing it, usually described as a yearly rate percentage.

Interest Rate

The percentage of the principal charged by the lender for the use of its money, or earned by an investor on an investment.