Concept explainers
a.
Find the relevant initial test to determine whether
a.
Explanation of Solution
The relevant initial test to determine whether goodwill could be impaired or not:
Particulars | Amount |
Carrying value | $ 120,070,000 |
Fair value | $ 110,000,000 |
Excess of carrying value over fair value | $ 10,070,000 |
Table: (1)
The initial test implies that the goodwill should be tested for impairment as the fair value is less than that of carrying value.
b.
Find the amount at which Company P record an impairment loss for its Company L reporting unit for the year.
b.
Explanation of Solution
Computation of amount at which Company P record an impairment loss for its Company L reporting unit for the year:
Particulars | Amount | |
Fair value of Company L | $ 110,000,000 | |
Fair value of net assets and liabilities: | ||
Cash | $ 109,000 | |
Receivables | $ 897,000 | |
Movie library | $ 60,000,000 | |
Broadcast licenses | $ 20,000,000 | |
Equipment | $ 19,000,000 | |
Current liabilities | $ (650,000) | |
Long-term debt | $ (6,250,000) | |
Total fair value | $ 93,106,000 | |
Implied fair value of goodwill | $ 16,894,000 | |
Carrying value of goodwill | $ 50,000,000 | |
Impairment loss | $ 33,106,000 |
Table: (2)
The following
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
Goodwill impairment loss | $ 33,106,000 | |||
Investment in Company L | $ 33,106,000 | |||
(being goodwill impairment loss recorded) |
Table: (3)
c.
Find the amount of consolidated net income for the year.
c.
Explanation of Solution
Computation of consolidated net income for the year:
Particulars | Amount |
Consolidated revenues | $ 30,000,000 |
Consolidated expenses | $ 22,200,000 |
Income before impairment loss | $ 7,800,000 |
Goodwill impairment loss | $ 33,106,000 |
Net loss | $ (25,306,000) |
Table: (4)
d.
Determine the balance of December 31 consolidated balance for goodwill.
d.
Explanation of Solution
Computation of consolidated goodwill for the year:
e.
Determine the balance of December 31 consolidated balance for broadcast licenses.
e.
Explanation of Solution
Computation of balance of December 31 consolidated balance for broadcast licenses:
f.
Prepare a consolidated worksheet for both companies.
f.
Explanation of Solution
Consolidated worksheet for both companies:
Company P and Company L | |||||
Consolidated Worksheet | |||||
December 31 | |||||
Income statement | Company P | Company L | Debit | Credit | Consolidated Balances |
Revenues | $ (18,000,000) | $ (12,000,000) | $ (30,000,000) | ||
Expenses | $ 10,350,000 | $ 11,800,000 | E 50,000 | $ 22,150,000 | |
Equity earnings from Company L | $ (150,000) | I 150,000 | $ - | ||
Impairment loss | $ 33,106,000 | $ 220,000 | |||
Net income | $ 25,306,000 | $ (200,000) | $ 25,306,000 | ||
Balance Sheet | |||||
Cash | $ 260,000 | $ 109,000 | $ 369,000 | ||
$ 210,000 | $ 897,000 | $ 1,107,000 | |||
Investment in Company L | $ 86,964,000 | $ - | D 80,000 | S 69,500,000 | |
A 7,394,000 | $ - | ||||
I 150,000 | |||||
Broadcast licenses | $ 350,000 | $ 14,014,000 | $ 14,364,000 | ||
Movie library | $ 365,000 | $ 45,000,000 | $ 45,365,000 | ||
Equipment | $ 136,000,000 | $ 17,500,000 | A 500,000 | E 50,000 | $ 153,950,000 |
Goodwill | $ - | $ - | A 16,894,000 | $ 16,894,000 | |
Total assets | $ 224,149,000 | $ 77,520,000 | $ 232,049,000 | ||
Current liabilities | $ (755,000) | $ (650,000) | $ (1,405,000) | ||
Long term debt | $ (22,000,000) | $ (7,250,000) | $ (29,250,000) | ||
Common stock | $ (175,000,000) | $ (67,500,000) | S 67,500000 | $ (175,000,000) | |
$ (26,394,000) | $ (2,120,000) | $ (26,394,000) | |||
Total liabilities and equity | $ (224,149,000) | $ (77,520,000) | $ 87,114,000 | $ 87,114,000 | $ (232,049,000) |
Table: (5)
Working note:
Statement of retained earnings | Company P | Company L | Debit | Credit | Consolidated Balances |
Retained earnings on 01/01 | $ (52,000,000) | $ (200,000) | S 2,000,000 | $ (52,000,000) | |
Dividends declared | $ 300,000 | $ 80,000 | D 80,000 | $ 300,000 | |
Net income | $ 25,306,000 | $ (200,000) | $ 25,306,000 | ||
Retained earnings on 31/12 | $ (26,394,000) | $ (320,000) | $ (26,394,000) |
Table: (6)
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