On January 1, 2012, Gray purchases 100% of Morgan Biometrics Inc. for $11.4 million. At the time of acquisition, the fair market value of Morgan Biometrics’ tangible net assets (excluding goodwill) is $10.2 million. Gray ascribes the excess of $1,200,000 to goodwill. During the year the fair value of Morgan Biometrics declines to $10.8 million and the fair value of Morgan Biometrics’ tangible net assets is estimated at $9.8 million as of December 31, 2012.
1. Determine if the goodwill has become impaired and, if so, the amount of the impairment.
2. What impact does the impairment of goodwill have on Gray Corp’s financial statements?
These short answer questions belong to Finance. The 1st question is about calculation of impaired goodwill and the 2nd question is about the impact of goodwill impairment on financial statements.
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