Chapter 1, Problem 1.33P

a.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

the amount, if any, that P should report as a goodwill impairment for the current period.

Answer to Problem 1.33P

Goodwill to be impaired is $\$90,000$ , $\$50,000$ , $\$75,000$ .

Explanation of Solution

For A:

  $\text{Impairment value of goodwill= Fair value of reporting unit-Fair value of net assets}$

  $\text{Fair value of net assets=Cash recievable+ inventory+land+equipment-account payable}$

  $30000+60000+20000+100000+140000-40000=310,000$

  $\text{Fair value of reporting unit=400,000}$

  $400,000-31,000=90,000$

Thus, the value of goodwill impairment is $\$90,000$ .

For B:

  $\text{Impairment value of goodwill= Fair value of reporting unit-Fair value of net assets}$

  $\text{Fair value of net assets=Cash recievable+ inventory+land+equipment-account payable}$

  $80000+100000+30000+150000+90000-60000=390,000$

  $\text{Fair value of reporting unit=440,000}$

  $440,000-39,000=50,000$

Thus, the value of goodwill impairment is $\$50,000$ .

For C:

  $\text{Impairment value of goodwill= Fair value of reporting unit-Fair value of net assets}$

  $\text{Fair value of net assets=Cash recievable+ inventory+land+equipment-account payable}$

  $20000+40000+10000+80000+50000-10000=190,000$

  $\text{Fair value of reporting unit=265,000}$

  $265,000-19,000=75,000$

Thus, the value of goodwill impairment is $\$75,000$ .

b.

To determine

Concept Introduction:

Consolidation: Consolidation is the process of accounting where books of the parent company are reported along with the books of the subsidiary company in consolidated/combined form after making necessary adjustment entries as required in the process of consolidation.

the amount of goodwill that P should report in its current financial statements.

Explanation of Solution

Goodwill to be reported
	Reporting unit
	A	B	C
Carrying value of goodwill	$70,000$	$80,000$	$40,000$
Implied goodwill at year-end	$90,000$	$50,000$	$75,000$
Goodwill to be reported at year-end	$70,000$	$50,000$	$40,000$

Total Goodwill at year-end:

Reporting Unit A: $70,000$

Reporting Unit B: $50,000$

Reporting Unit C: $40,000$

Total Amount of Goodwill: $160,000$

Computation of Goodwill:

Reporting Unit A
Fair value of reporting unit		$400,000$
Fair value of identifiable assets	$350,000$
Fair value of accounts payable	$\left(40,000\right)$
Fair value of net assets		$\left(310,000\right)$
Implied goodwill at year end		$90,000$

Reporting Unit B
Fair value of reporting unit		$440,000$
Fair value of identifiable assets	$450,000$
Fair value of accounts payable	$\left(60,000\right)$
Fair value of net assets		$\left(390,000\right)$
Implied goodwill at year end		$50,000$

Reporting Unit C
Fair value of reporting unit		$265,000$
Fair value of identifiable assets	$200,000$
Fair value of accounts payable	$\left(10,000\right)$
Fair value of net assets		$\left(190,000\right)$
Implied goodwill at year end		$75,000$