HW 3 with solution - Ch 3 subsequent to date of Consolidation

HW 3 with solution - Ch 3 subsequent to date of Consolidation

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Homework Ch 3 Three Problems: 3-16, 3 – 17 and 3-25. Solutions: Problem 1: 3-16 (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 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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Problem 2: 3-17 (30 Minutes) (Consolidation entries for two years. Parent uses equity method.) Fair Value Allocation and Annual Amortization: Acquisition fair value (consideration transferred) $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, 2011 Entry S Common Stock—Abernethy ..................................................... 250,000 Additional Paid-in Capital . ..................................................... 50,000 Retained Earnings—1/1/11 . ................................................... 100,000
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This note was uploaded on 02/22/2012 for the course ACCT 501 taught by Professor Ma during the Spring '11 term at South Carolina.

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HW 3 with solution - Ch 3 subsequent to date of Consolidation

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