Ch3HW-A - 15. (20 minutes) (Goodwill impairment testing.)...

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15. (20 minutes) (Goodwill impairment testing.) a. Goodwill Impairment Step 1 Fair value of reporting unit = $650 Carrying value of reporting unit = 780 Because fair value < carrying value, there is a potential goodwill impairment loss. Step 2 Fair value of reporting unit $650 Fair value of net assets excluding goodwill Tangible assets $110 Recognized intangibles 230 Unrecognized intangibles 200 540 Implied value of goodwill 110 Carrying value of goodwill 500 Goodwill impairment loss $390 b. Tangible assets, net $80 Goodwill 110 Customer list -0- Patent -0- 16. (30 minutes) (Goodwill impairment and intangible assets.) Part a Goodwill Impairment Test—Step 1 Total fair Carrying Potential goodwill value value impairment ? Sand Dollar $510,000 < $530,000 yes Salty Dog 580,000 < 610,000 yes Baytowne 560,000 > 280,000 no
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Part b Goodwill Impairment Test—Step 2 (Sand Dollar and Salty Dog only) Sand Dollar—total fair value $510,000 Fair values of identifiable net assets Tangible assets $190,000 Trademark 150,000 Customer list 100,000 Liabilities (30,000 ) 410,000 Implied value of goodwill 100,000 Carrying value of goodwill 120,000 Impairment loss $20,000 Salty Dog—total fair value $580,000 Fair values of identifiable net assets Tangible assets $200,000 Unpatented technology 125,000 Licenses 100,000 425,000 Implied value of goodwill 155,000 Carrying value of goodwill 150,000 No impairment—implied value > carry value - 0 - Part c No changes in tangible assets or identifiable intangibles are reported based on goodwill impairment testing. The sole purpose of the valuation exercise is to estimate an implied value for goodwill. Destin will report a goodwill impairment loss of $20,000, which will reduce the amount of goodwill allocated to Sand Dollar. However, because the fair value of Sand Dollar’s trademarks is less than its carrying amount, the account should be subjected to a separate impairment testing procedure to see if the carrying value is “recoverable” in future estimated cash flows.
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17. (30 Minutes) (Consolidation entries for two years. Parent uses equity method.) Fair Value Allocation and Annual Amortization: Acquisition fair value (consideration paid) . ............ $490,000 Book value (assets minus liabilities or total stockholders' equity) . ................................................................... (400,000 ) Excess fair value over book value . ........................... $90,000 Excess fair value assigned to specific accounts based on individual fair values Annual Excess Life Amortizations Land . ..................................... $10,000 -- -- Buildings . ........................... 40,000 4 yrs. $10,000 Equipment . .......................... (20,000 ) 5 yrs. (4,000) Total assigned to specific accounts . ...................... 30,000 Goodwill . .............................. 60,000 Indefinite -0- Total . ...................................... $90,000 $6,000 Consolidation Entries as of December 31, 2009 Entry S Common Stock—Abernethy. ................................. 250,000
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Ch3HW-A - 15. (20 minutes) (Goodwill impairment testing.)...

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