Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 12, Problem 12.5P
| Description | Debit | Credit |
| Investment securities – held to maturity | $ 30,000 | |
| Plant and equipment – net | 195,000 | |
| Intangible assets – net | 70,000 | |
| Long-term debt | $ 115,000 | |
| Contributed capital | 60,000 | |
| 120,000 | ||
| Totals | $295,000 | $295,000 |
The AutoStyle Group acquired the intangible assets 3 years ago. It amortizes the assets using the straight-line method with no estimated residual value. The appraisal of the subsidiary’s net assets on the date of acquisition indicated that the following adjustments were Required:
| Description | Book Value | Fair Value | Adjustment |
| Plant and equipment – net | $195,000 | $210,000 | $15,000 |
| Customer list | 0 | 50,000 | 50,000 |
| Long-term debt | (115,000) | (120,000) | (5,000) |
| Total net assets | $ 80,000 | $140,000 | $60,000 |
On December 31 (1 year after the acquisition), Green River’s management conducted its annual impairment test for goodwill. Management has also assessed recent events and determined that it should review its plant and equipment and finite-life intangible assets for possible impairment. Management determines AutoStyle to be the reporting unit, which is also the cash-generating unit. Management estimated that the fair value of the unit (AutoStyfe) with goodwill 1 year after the acquisition was $300,000; its value in use was $310,000; and the costs to sell were $20,000. The net assets of the unit excluding goodwill, were appraised at $294,000. Assume that annual
Management is unable to determine fair values for the reporting unit s assets, but it estimates the following future cash flows for each of the unit's assets with the exception of goodwill. Assume that Green River’s cost of capital is 5%.
| Future Period | Plant and Equipment | Finite-Life Intangible Assets | Customer List |
| Year 1 | $ 51,500 | $11,000 | $16,800 |
| Year 2 | 40,000 | 10,000 | 14,200 |
| Year 3 | 20,500 | 8,900 | 10,600 |
| Year 4 | 14,000 | 7,700 | 9,500 |
| Year 5 | 0 | 6,500 | 8,800 |
| Year 6 | 0 | 6,000 | 5,100 |
| Year 7 | 0 | 3,900 | 3,000 |
| Total | $126,000 | $54,000 | $68,000 |
Required
- a. Compute the amount of goodwill to be recorded on the date of acquisition.
- b. Conduct the impairment test for goodwill at the end of the year, 1 year after the acquisition Assume no changes in the reporting unit's assets and liabilities except for depreciation and amortization.
- c. Conduct the impairment tests indicated for assets other than goodwill at the end of the year, 1 year after the acquisition.
- d. Prepare the
journal entries Required to record any impairment losses computed in parts (b) and (c).
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Chapter 12 Solutions
Intermediate Accounting (2nd Edition)
Ch. 12 - Prob. 12.1QCh. 12 - Can firms group all property, plant, and equipment...Ch. 12 - Prob. 12.3QCh. 12 - Prob. 12.4QCh. 12 - Do firms follow the same steps for impairment...Ch. 12 - Prob. 12.6QCh. 12 - Prob. 12.7QCh. 12 - Prob. 12.8QCh. 12 - Under IFRS, if a firm recovers an impairment loss...Ch. 12 - Under IFRS, when do firms test plant assets and...
Ch. 12 - Prob. 12.11QCh. 12 - Prob. 12.12QCh. 12 - Prob. 12.1MCCh. 12 - Prob. 12.2MCCh. 12 - Prob. 12.3MCCh. 12 - Prob. 12.4MCCh. 12 - Prob. 12.5MCCh. 12 - Prob. 12.6MCCh. 12 - Prob. 12.1BECh. 12 - Prob. 12.2BECh. 12 - Prob. 12.3BECh. 12 - Prob. 12.4BECh. 12 - Indefinite-Life Intangible Asset Impairment....Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.10BECh. 12 - Impairment Reversal. IFRS. Perlu Products an IFRS...Ch. 12 - Prob. 12.12BECh. 12 - Prob. 12.13BECh. 12 - Prob. 12.14BECh. 12 - Prob. 12.15BECh. 12 - Prob. 12.16BECh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.19BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.21BECh. 12 - Prob. 12.22BECh. 12 - Prob. 12.23BECh. 12 - Tangible Asset Impairment. Henne Optical...Ch. 12 - Tangible Asset Impairment Loss. Use the same...Ch. 12 - Prob. 12.3ECh. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Tangible Asset Impairment Loss, IFRS. Use the same...Ch. 12 - Prob. 12.7ECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.9ECh. 12 - Assets Held for Disposal. Hattie Corporation...Ch. 12 - Prob. 12.11ECh. 12 - Asset Revaluation, Downwards, IFRS. Lousa Company...Ch. 12 - Tangible Asset Impairment. Chrispian Cookies, Inc....Ch. 12 - Prob. 12.2PCh. 12 - Tangible Asset Impairment. Using the same...Ch. 12 - Prob. 12.4PCh. 12 - Goodwill Impairment, Tangible Fixed Assets, and...Ch. 12 - Tangible Asset Impairment, Potential Reversal,...Ch. 12 - Prob. 12.7PCh. 12 - Prob. 12.8PCh. 12 - Prob. 12.9PCh. 12 - Comprehensive Asset Revaluation Problem (Initial...Ch. 12 - Prob. 12.11PCh. 12 - Judgment Case 1: Impairments of PPE under IFRS...Ch. 12 - Prob. 2JCCh. 12 - Prob. 3JCCh. 12 - Financial Statement Analysis Case 1: Long-Lived...Ch. 12 - Surfing the Standards Case 1: Impairments of PPE...Ch. 12 - Prob. 2SSCCh. 12 - Prob. 1BCCCh. 12 - Basis for Conclusions Case 2: Intangible Assets ...Ch. 12 - Basis for Conclusions Case 3: Goodwill Impairment...
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