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, Salty Dog, and Baytowne.
In its annual review for goodwill impairment, 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 overall valuations for the entire reporting units (including goodwill) are $510,000 for Sand Dollar, $580,000 for Salty Dog, and $560,000 for Baytowne. To date, Destin has reported no goodwill impairments.
a. Which of Destin’s reporting units require both steps to test for goodwill impairment?
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?
Problems 17 through 19 should be viewed as independent situations. They are based on the following data:
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2011. As of that date, Abernethy has the following trial balance:
| Debit | Credit |
Accounts payable |
| $ 50,000 |
Accounts receivable | $ 40,000 |
|
Additional paid-in capital |
| 50,000 |
Buildings (net) (4-year life) | 120,000 |
|
Cash and short-term investments | 60,000 |
|
Common stock |
| 250,000 |
Equipment (net) (5-year life) | 200,000 |
|
Inventory | 90,000 |
|
Land | 80,000 |
|
Long-term liabilities (mature 12/31/14) |
| 150,000 |
Retained earnings, 1/1/11 |
| 100,000 |
Supplies | 10,000 |
|
Totals | $600,000 | $600,000 |
During 2011, Abernethy reported income of $80,000 while paying dividends of $10,000. During 2012, Abernethy reported income of $110,000 while paying dividends of $30,000.
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