Description | Debit | Credit |
Investment securities – held to maturity | $ 30,000 | |
Plant and equipment – net | 195,000 | |
Intangible assets – net | 70,000 | |
Long-term debt | $ 115,000 | |
Contributed capital | 60,000 | |
120,000 | ||
Totals | $295,000 | $295,000 |
The AutoStyle Group acquired the intangible assets 3 years ago. It amortizes the assets using the straight-line method with no estimated residual value. The appraisal of the subsidiary’s net assets on the date of acquisition indicated that the following adjustments were Required:
Description | Book Value | Fair Value | Adjustment |
Plant and equipment – net | $195,000 | $210,000 | $15,000 |
Customer list | 0 | 50,000 | 50,000 |
Long-term debt | (115,000) | (120,000) | (5,000) |
Total net assets | $ 80,000 | $140,000 | $60,000 |
On December 31 (1 year after the acquisition), Green River’s management conducted its annual impairment test for goodwill. Management has also assessed recent events and determined that it should review its plant and equipment and finite-life intangible assets for possible impairment. Management determines AutoStyle to be the reporting unit, which is also the cash-generating unit. Management estimated that the fair value of the unit (AutoStyfe) with goodwill 1 year after the acquisition was $300,000; its value in use was $310,000; and the costs to sell were $20,000. The net assets of the unit excluding goodwill, were appraised at $294,000. Assume that annual
Management is unable to determine fair values for the reporting unit s assets, but it estimates the following future
Future Period | Plant and Equipment | Finite-Life Intangible Assets | Customer List |
Year 1 | $ 51,500 | $11,000 | $16,800 |
Year 2 | 40,000 | 10,000 | 14,200 |
Year 3 | 20,500 | 8,900 | 10,600 |
Year 4 | 14,000 | 7,700 | 9,500 |
Year 5 | 0 | 6,500 | 8,800 |
Year 6 | 0 | 6,000 | 5,100 |
Year 7 | 0 | 3,900 | 3,000 |
Total | $126,000 | $54,000 | $68,000 |
Required
- a. Compute the amount of goodwill to be recorded on the date of acquisition.
- b. Conduct the impairment test for goodwill at the end of the year, 1 year after the acquisition Assume no changes in the reporting unit's assets and liabilities except for depreciation and amortization.
- c. Conduct the impairment tests indicated for assets other than goodwill at the end of the year, 1 year after the acquisition.
- d. Prepare the
journal entries Required to record any impairment losses computed in parts (b) and (c).
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Intermediate Accounting
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning