Question

32. Prime Publishing, Inc., purchased 100 percent of the outstanding common stock of Select Media, Inc., on January 1, 2014, for $3,000,000. The following schedule out- lines how the purchase price was allocated at the time of acquisition: $3,000,000 1,400,000 1,600,000 Price paid ......... Select Media's shareholders' equity.... Excess of cost over book value ....... Attributed to: Buildings: 10-year remaining life ...... Customer Relationships: 9-year useful life....... Copyrights: Indefinite useful life....... Goodwill ............... 80,000 450,000 470,000 600,000 Select Media is an independent subsidiary of Prime Publishing. It is also classified as a separate cash-generating unit (CGU). As of December 31, 2016, Select Media had earned $500,000 before acquisition adjustments (i.e., before subtracting the extra depreciation on buildings and amortization of customer relationships required by the above purchase price allocations). Select Media pays no dividends to Prime. Required: a. What was the book value of the Select Media CGU as of December 31, 2016? Include identifiable intangibles and goodwill in your calculation. Assume that none of the CGU's assets have been impaired since the acquisition. b. On December 31, 2016, the estimated fair value of the Select Media CGU (based on discounted cash flow analysis) was $2,950,000. Should Prime Publishing take an impairment charge to write down the value the CGU's goodwill? If so, what is the value of the charge that Prime Publishing will record?

Answer 1

3olution Requirement () Broke value of the select Media cao as on Dec 31, 2016. Amout($) (400000 500000 particulare Original Book Value ( Select Media's sharoholder's equity * Earnings Sonce acquisation * Revaluation of building Boole valece as on January, 2014 Less depriciation toon 2014, 15 & 16 given remaining life 10-years. res (sociolo 3 year) 80000 (24000) CU Y 56000 2016 Net of Extra Depreciation cultomer relationships Boole value os on Tamay 1, 2014 450000 locs! Depil.cmortization for 2014 Desert given remaining life an years. ries (usoooo x 3 yean) (150cco) - . Met value * Copy rights indefinite useful life * Goodwill (150000) 450000 X 3 years qyears 300000 470000 600000 Book Value of cau on December 31, 2016 3326000
Note: depreciation and amortization calculated on above on the basis of straight line method.
Requirement (6) Yes, the tair value of the cao is less than its bookvalec. A goodwill write down. equal to $3326000 - $ 2950000 = $376000 would be required on December 31, 2016.