The Value Of Goodwill And The Acquisition Of Nextel

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In 2005, Sprint finalized the acquisition of Nextel. Since Sprint paid a considerate amount over the fair value estimate of Nextel, they reported the excess as goodwill. Following the purchase of Nextel, Sprint has had difficulty integrating the acquisition. Due to the continuing struggles of the acquisition, possible impairment may exist. The first step needed in identifying the possibility of impairment is various qualitative factors. Sprint falls into the three qualitative factors of increasing costs, decreasing of overall financial performance, and decreasing in stock price. Since these factors exist, we must test for impairment. In testing for impairment, the fair value of the company is compared to the book value. The book value of…show more content…
The second qualitative factor relating to Sprint has to do with the overall financial performance. FASB codification establishes if the overall financial performance decreases, meaning decreasing cash flows or negative revenue compared to previously project revenues, then impairment may exists . The most recent example of this is last quarter when our company experienced a 215 million dollar decrease in income from continuing operations compared to the previous year’s third quarter. The final qualitative factor relating to Sprint deals with the company’s stock price. FASB claims a decrease in share price that is sustained is a qualitative factor . In 2005, our company’s stock price was $23.36 per share and has been decreasing ever since. Now, it remains at $19 per share. Since there are three qualitative factors relating to Sprint, it seems relatively likely that the carrying value of goodwill exceeds the fair value. According to FASB, the entity now must perform the first step of the two step impairment process . The first step of the impairment test compares the fair value of the company to the carrying value . The fair value of a company is the amount they would receive on the current date if they were to sell all of their assets. According to FASB, market prices in actual markets exists as the best method for computing fair value . This can be done by taking the market price per share times

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