Question

Pursuing an inorganic growth strategy, Wilson Company acquired Venus Company's net assets and assigned them to four separate reporting divisions. Wilson assigned total goodwill of $134,000 to the four reporting divisions as given below:

Carrying value Goodwill included in carrying value Fair value of net identifiable assets at year-end Fair value ofreporting unit at year-end Alpha Beta Gamma Delta $200,000 $320,000 $370,000 $300,000 20,000 34,000 50,000 30,000 150,000 300,000 390,000 280,000 180,000 350,000 360,000 295,000

25. Based on the preceding information, what amount of goodwill will be reported for Alpha at year-end?
A. $0
B. $20,000
C. $30,000
D. $10,000

*I know the answer is $20,000 but if you can please show computations for that answer.

26. Based on the preceding information, what amount of goodwill will be reported for Beta at year-end?
A. $0
B. $14,000
C. $34,000
D. $50,000

*I know the answer is $34,000 but if you can please show computations for that answer.

27. Based on the preceding information, for Gamma:
A. no goodwill should be reported at year-end.
B. goodwill impairment of $30,000 should be recognized at year-end.
C. goodwill impairment of $20,000 should be recognized at year-end.
D. goodwill of $30,000 should be reported at year-end.

*I know the answer is A but if you can please show computations for that answer.

28. Based on the preceding information, for Delta:
A. no goodwill should be reported at year-end.
B. goodwill impairment of $15,000 should be recognized at year-end.
C. goodwill impairment of $20,000 should be recognized at year-end.
D. goodwill of $30,000 should be reported at year-end.

*I know the answer is B but if you can please show computations for that answer.

29. Based on the preceding information, what would be the total amount of goodwill that Wilson should report at year-end?
A. $0
B. $69,000
C. $79,000
D. $94,000

*I know the answer is $69,000 but if you can please show computations for that answer.

Answer 1

		Alpha	Beta	Gamma	Delta
1	Carrying value	$2,00,000	$3,20,000	$3,70,000	$3,00,000
2	Goodwill included in carrying value	$20,000	$34,000	$50,000	$30,000
3	Fair value of net identifiable assets at year end	$1,50,000	$3,00,000	$3,90,000	$2,80,000
4	Fair value of reporting unit at year end	$1,80,000	$3,50,000	$3,60,000	$2,95,000
5	Implied goodwill (4 - 3)	$30,000	$50,000	$0	$15,000
	Goodwill to be reported at year end (lower of 2 or 5)	$20,000	$34,000	$0	$15,000

25. Answer: Option B ($20,000)

Goodwill included in carrying value is lesser than implied goodwill hence the amount of goodwill that will be reported is $20,000.

26. Answer: Option C ($34,000)

Implied goodwill is lesser than goodwill included in carrying value hence the amount of goodwill that will be reported is $34,000.

27. Answer: Option A

Implied goodwill is negative and goodwill can never be negative. Hence no goodwill will be reported as it is lower than goodwill included in carrying value.

28. Answer: Option B

Implied goodwill is lesser than goodwill included in carrying value hence the amount of goodwill that will be reported is $15,000. Thus impairment of $15,000 ($30,000 - $15,000) will be reported.

29. Answer: Option B ($69,000)

Total goodwill to be reported = $20,000 (Alpha) + $34,000 (Beta) + $0 (Gamma) + $15,000 (Delta) = $69,000