Prepare the journal entry to record the impairment loss

Question 1

In 2011, Ace Co. Ltd exchanged machinery with Bee Co. Ltd. Following was related information:

Ace’s machinery

Bee’s machinery

Cost

$250,000

$510,000

Accumulated depreciation

100,000

250,000

Fair value

175,000

172,000

Cash received

3,000

Cash paid

3,000

Ace purchased equipment by signing a 5 year non-interest bearing note payable for $100,000. Market interest rate was 5%.

Ace received a $5,000 government grant to help purchase the equipment.

Required:

a. Assuming that the machinery exchange has commercial substance, prepare the required journal entries of the exchange for both Ace and Bee.

b. Assuming that the machinery exchange does not have commercial substance, prepare the required journal entries of the exchange for both Ace and Bee.

c. Prepare the required journal entry to record the purchase of the equipment by the non-interest bearing note.

d. Prepare the required journal entries to record the government grant using the 2 methods acceptable by MRS on the date when the grant is received.

Question

On May 31, 2011, Giant Company paid $7,000,000 to acquire all of the ordinary shares of Small Company to form a division of Giant. At the time of the acquisition, Small reported the following statement of financial position:

Non-current assets Current assets

Total assets

$5,400,000 Equity $5,000,000

1,800,000 Non-current liabilities 1,000,000

Current liabilities 1,200,000

$7,200,000 Total equity and liabilities $7,200,000

At acquisition, fair value of the identifiable net assets of Small was $5,600,000.

At December 31, 2011, Small reported the following statement of financial position information:

Current assets

Non-current assets (including goodwill) Current liabilities

Non-current liabilities

Net assets

$1,600,000

4,800,000 (1,400,000) (L000,000)

4 000 000

Recoverable amount of the Small division on the same day was determined to be $4,200,000.

Required:

a. Compute the amount of goodwill recognized, if any, on May 31, 2011.

b. Determine the impairment loss, if any, to be recorded on December 31, 2011.

c. Assuming that the recoverable amount of the Small division is $3,800,000, prepare the journal entry to record the impairment loss, if any, on December 31, 2011.

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