Problem

Destin Company recently acquired several businesses and recognized goodwill in each acquis...

Destin Company recently acquired several businesses and recognized goodwill in each acquisi­tion. Destin has allocated the resulting goodwill to its three reporting units:Sand Dollar, SaltyDog, and Baytowne. Destin performs a quantitative goodwill impairment review annually.

In its current year assessment of goodwill, Destin provides the following individual asset and liability values for each reporting unit:

 

Carrying Values

Fair Values

Sand Dollar

 

 

Tangible assets

$180,000

$190,000

Trademark

170,000

150,000

Customer list

90,000

100,000

Goodwill

120,000

?

Liabilities

(30,000)

(30,000)

Salty Dog

 

 

Tangible assets

$200,000

$200,000

Unpatented technology

170,000

125,000

Licenses

90,000

100,000

Goodwill

150,000

?

Baytowne

 

 

Tangible assets

140,000

150,000

Unpatented technology

-0-

100,000

Copyrights

50,000

80,000

Goodwill

90,000

?

The fair values for each reporting unit (including goodwill) are $510,000 forSand Dollar, $580,000 for Salty Dog, and$560,000 for Baytowne. To date, Destinhas reportedno goodwillimpairments.

a. Which of Destin’s reporting units require both steps to test for goodwillimpairment?

b. How much goodwill impairment should Destin report this year?

c. What changes to the valuations of Destin’s tangible assets and identified intangible assets should be reported based on the goodwill impairment tests?

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