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...will 50,000 2) The journal entry would be the following: Current Assets 510,000 Fixed Assets 3,500,000 Goodwill 50,000 Current liabilities 800,000 Long-Term Debt 920,000 Common stocks 2,340,000 3) The Consolidated balance sheet would look like this: A Corp Inc. Consolidated Balance Sheet As at July 1, 2005 Current assets (450,000+510,000) $ 960,000 Fixed assets (4,950,000+3,500,000) 8,450,000 Goodwill 50,000 Total assets 9,460,000 Current liabilities (600,000+800,000) 1,400,000 LTD (1,100,000+920,000) 2,020,000 Common Stock (2,500,000+2,340,000) 4,840,000 Retained earnings 1,200,000 Total equity 9,460,000 After the date of acquisition, the goodwill will stay on the balance sheet. Prior to the new CICA standard, goodwill could have been written off over its estimated useful life. Since January 2002, the goodwill and other intangible assets must be tested for impairment on a yearly basis. As per section 3062.25 of the CICA, “a goodwill impairment loss should be recognized when the carrying amount of the goodwill of a reporting unit exceeds the fair value of the goodwill. An impairment loss should not be reversed if the fair value subsequently increases’’. The impairment test is divided in two steps, which are: 1) The fair value of a reporting unit is compared to its net carrying amount including goodwill. a. When fair value of a reporting unit exceeds its carrying amount, no impairment of goodwill should be recognized and the second step is not necessary. 2) When the carrying amount of a reporting unit exceeds its fair value, the fair value of the reporting unit’s goodwill should be compared with its carrying amount to measure the amount of impairment. Fair value is estimated in the same way as goodwill is calculated on the date of acquisition. To continue with the above example, assume that the date is now December 31, 2005. Also, assume that the carrying value of A Corp is the same as at July 1st, 2005. In addition, the company had a net income of $200,000 and paid dividends of $25,000. Therefore, the carrying value at December 31st, 2005 is computed as follow: Common stock: $4,840,000 Retained Earnings: (1,200,000+200,000-25,000) 1,375,000 New carrying value: 6,215,000 There are two possible scenarios with different FMVs: Scenario 1 Scenario 2 Current Assets 970,000 1,000,000 Fixed Assets 8,500,000 8,600,000 Goodwill 50,000 50,000 Current Liabilities (1,400,000) (1,400,000) Long-term Debt (2,020,000) (2,020,000) NET ASSETS 6...