project.docx - Running Head: GOODWILL IMPAIRMENT AT JACKSON...

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Running Head: GOODWILL IMPAIRMENT AT JACKSON ENTERPRISES1Goodwill Impairment at Jackson Enterprises
GOODWILL IMPAIRMENT AT JACKSON ENTERPRISES2AbstractThis paper analyzes the goodwill valuation of Dynamic Technologies and ZD Systems, who are subsidiary companies of Jackson Enterprises. The two subsidiaries make up the semiconductor operating segment for Jackson Enterprises. The analysis includes a qualitative assessment, two-step impairment test, and a determination of value of the goodwill recorded in both companies.Keywords: goodwill, qualitative assessment, two-step impairment test
GOODWILL IMPAIRMENT AT JACKSON ENTERPRISES3BackgroundJackson Enterprise has two subsidiary companies that make up its semiconductor operating segment of its business. The operating segment meets the requirements by the Financial Accounting Standards Board (FASB) to be classified as an operating segment, including that the two entities earn revenues and incur expenses, operating results are reviewed routinely, and its financial information is available (FASB, ASC 280-10-50-1). The two subsidiaries are Dynamic Technologies, which Jackson Enterprise acquired majority ownership of 80% in 2011, and ZD Systems, 100% acquired by Jackson Enterprise in 2006. During the acquisition, Jackson Enterprise recorded $150 million and $50 million in goodwill from the purchase of Dynamic Technologies and ZD Systems, respectively (McNellis, Premuroso, & Houmes, 2015).Since the acquisition of both Dynamic Technologies and ZD Systems, Jackson Enterprises has not had any indication that the goodwill values were impaired, so the company has not made any closing adjustments to the goodwill values. However, in 2014, there were many events and circumstances that occurred in and around each company that prompt the need to perform the qualitative test to review the goodwill valuations.Qualitative Test RequirementsCompanies need to regularly review their goodwill valuation, which is required to be completed annually at a minimum (FASB, ASC 350-20-35-28). The first phase in the process involves examining qualitative factors to see if there is evidence of events or circumstances that would allude to a change in value. The evidence just needs to show that it’s at least 50% more “likely than not” that the fair value is less than the carrying, or book, value (FASB, ASC 350-20-35-3A). Examples of such qualitative events that should be considered in the analysis, include
GOODWILL IMPAIRMENT AT JACKSON ENTERPRISES4macroeconomic conditions, industry & market considerations, cost factors, overall financial performance, other relevant entity-specific events (such as changes in personnel, customers, or strategy), decrease in share price, and other events specific to a reporting unit FASB (ASC 350-20-35-3C). If after reviewing the qualitative factors it is determined that the fair value is likely tobe less than the carrying value, then that triggers the second phase of the process to perform the two-step impairment test on goodwill.

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