Question

On January 1, 20X7, Proft Company purchased Strobe Company’s net assets and assigned them to four separate reporting units. Total goodwill of $176,000 is assigned to the reporting units as indicated: Reporting Unit A B C D Carrying value of reporting unit at 12/31/20X7 $ 700,000 $ 330,000 $ 380,000 $ 520,000 Goodwill included in carrying value 60,000 48,000 28,000 40,000 Fair value of net identifiable assets at 12/31/20X7 600,000 300,000 400,000 500,000 Fair value of reporting unit at 12/31/20X7 690,000 335,000 360,000 585,000 Required: Determine the amount of goodwill that Proft should report at December 31, 20X7.

Answer 1

Solution: $158,000

Working:

Cash-generating unit A: The implied value of goodwill will be $90,000 ($690,000 - $600,000) and the carrying amount of goodwill is $60,000. Thus the goodwill for the amount of $60,000 should be reported.

Cash-generating unit B: The fair value of the cash- generating unit (i.e. $335,000) is higher in comparison to the carrying value of the investment (i.e. $330,000). Thus the goodwill for the amount of $48,000 should be reported.

Cash-generating unit C: The fair value of the net assets (i.e. $400,000) is higher than the the fair value of the cash-generating unit (i.e. $360,000). Thus the goodwill for the amount of $0 should be reported.

Cash-generating unit D: The fair value of the cash- generating unit (i.e. $585,000) is higher than the carrying value of the investment (i.e. $520,000). Thus the goodwill for the amount of $50,000 should be reported.