aa2e ham ch04 solutions

8/20/2019 Aa2e Ham Ch04 Solutions

http://slidepdf.com/reader/full/aa2e-ham-ch04-solutions 1/44

CHAPTER 4

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS

1. b

Goodwill at the date of acquisition is $10,000,000 ( = $16,000,000 – 4,000,000 +8,000,000 – 10,000,000). Goodwill at 1114 is $10,000,000 – !,000,000 = $8,000,000."and, buildin#s and equi%ent &e'aluation at 1114 is a c&edit of $8,000,000 – *(8,000,000!0) = $(6,800,000).ntan#ibles &e'aluation at 1114 = $10,000,000 – * ($10,000,000-) = $4,000,000.

li%inatin# ent&/ is as follows

Goodwill 8,000,000dentifiable intan#ibles 4,000,000

"and, buildin#s andequi%ent 6,800,000

n'est%ent in 2ale% -,!00,000

!. b

li%inatin# ent&/ 3 is as follows

3e&atin# e*enses !,100,000

"and, buildin#s and equi%ent 400,000

Goodwill -00,000dentifiable intan#ibles !,000,000

. a

alculation of quit/ in 5et nco%e

2ale%s &eo&ted net inco%e $ !,-00,000

e'aluation w&iteoffs

"and, buildin#s and equi%ent de&eciation 400,000

dentifiable intan#ibles a%o&ti7ation (!,000,000)

Goodwill i%ai&%ent loss (-00,000)

quit/ in inco%e of 2ale% $ 400,000

©Cambridge Business Publishers, 2013

Solutions Manual, Chapter 4 1



4. c

3&i#inal cost $ 16,000,000

han#e in 2ale%s &etained ea&nin#s to 1114 14,000,000

/ea&s land, buildin#s and equi%ent de&eciation 1,!00,000

/ea&s identifiable intan#ibles a%o&ti7ation (6,000,000)Goodwill i%ai&%ent loss to 1114 (!,000,000)

n'est%ent balance, 1114 !,!00,000

quit/ in net inco%e, !014 400,000

n'est%ent balance, 1!114 $!,600,000

-. c

Customer lists Bra! ames

oo9 'alue : undiscounted cash flows; 5o <es

ai& 'alue $,400,000

oo9 'alue -,!00,000%ai&%ent loss >> $1,800,000

6. d

Di"isio # Di"isio $

2te one ?i'ision boo9 'alue : fai& 'alue; <es <es

2te two

ai& 'alue of #oodwill $1,000,000 $8,000,000

oo9 'alue of #oodwill 1,600,000 6,400,000

%ai&%ent loss $ 600,000 >0>

@. c

Di"isio # Di"isio $

ai& 'alue of di'ision $14,000,000 $!0,000,000

oo9 'alue of di'ision 16,000,000 !4,000,000

Aotential #oodwill i%ai&%ent !,000,000 4,000,000

Bctual i%ai&%ent loss $ 1,600,000 $ 4,000,000


2 Advaned Aounting, 2nd !dition



8. d

Customer lists Bra! ames

ai& 'alue $1,!00,000 $,400,000

oo9 'alue 1,-00,000 -,!00,000

%ai&%ent loss $ 00,000 $1,800,000

C. a

10. a

$-00,000 – 100,000 = $400,000.





EXERCISES

E4%# E&uit' Met(o! A))outi*

alculation of quit/ in 5et nco%e

Dohnsons &eo&ted net inco%e $ 8-,000,000e'aluation w&iteoffs

Alant assets $-0,000,000!- (!,000,000)

Goodwill i%ai&%ent loss (!0,000,000)

quit/ in net inco%e of Dohnson $ 6,000,000

nt&ies %ade b/ Geo&#e du&in# !01

n'est%ent in Dohnson -00,000,000

aital stoc9 -00,000,000

n'est%ent in Dohnson 6,000,000

quit/ in net inco%e ofDohnson 6,000,000

ash 0,000,000

n'est%ent in Dohnson 0,000,000

E4%$ E&uit' Met(o! I)ome a! +ori* Pa-er Elimiatios

(all amounts in millions)

a. n'est%ent balance, 1114 $!,!86n'est%ent balance, 111 = $!,000 + $!00 !,!00han#e 86!01 di'idends 60!01 equit/ inco%e acc&ual 146E&iteoff of lant asset &e'aluation = ($16010) 162abe&s !01 net inco%e $ 16!

b. 2abe&s stoc9holde&s equit/, 111 $!,000!01 net inco%e 16!!01 di'idends (60)2abe&s stoc9holde&s equit/, 1114 $!,10!

c. 2abe&s !014 net inco%e $ 10*t&a de&eciation on &e'alued lant assets (16)quit/ inco%e acc&ual $ 114





d. ()quit/ inco%e acc&ual 114

?i'idends – 2abe& 40n'est%ent in 2abe& @4

()2toc9holde&s quit/ – 2abe& !,10!

n'est%ent in 2abe& !,10!

()Alant assets, net 144Goodwill 40

n'est%ent in 2abe& 184

(3)?e &eciation e*ense 16

Alant assets, net 16

e. Bt the be#innin# of !0!-, the lant assets a&e full/ de&eciated and the &e%ainin# balancefo& #oodwill is $40 > $0 = $10.

()Goodwill 10

n'est%ent in 2 10

nt&/ (3) is not needed since no &e'aluations a&e w&itten off in !0!-.


Solutions Manual, Chapter 4 "



E4%. Cosoli!atio at E! o/ 0irst 1ear

a. Fhe acquisition ent&/ is as follows

n'est%ent in 2addlestone 10,00,000

e&#e& e*enses !-0,000

aital stoc9 10,000,000ontin#ent conside&ationliabilit/ 00,000

ash !-0,000

alculation of !01 equit/ in net inco%e

2addlestones &eo&ted net inco%e $ ,000,000

e'aluation w&iteoff

dentifiable intan#ibles $!,000,000- (400,000)

quit/ in net inco%e of 2addlestone $ !,600,000

Aea9s equit/ %ethod ent&ies fo& !01n'est%ent in 2addlestone !,600,000

quit/ in net inco%e of2addlestone !,600,000

ash 1,000,000


b. alculation of #oodwill is as follows

Bcquisition cost $ 10,00,000

oo9 'alue of 2addlestone (@,!00,000)*cess of acquisition cost o'e& boo9 'alue ,100,000

dentifiable intan#ibles (!,000,000)

Goodwill $ 1,100,000

onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !01()

quit/ in net inco%e of2addlestone !,600,000

?i'idends – 2addlestone 1,000,000


()

2toc9holde&s equit/H 2addlestone, 11 @,!00,000

n'est%ent in 2addlestone @,!00,000


# Advaned Aounting, 2nd !dition



E4%. )otiue!

()

dentifiable intan#ibles !,000,000

Goodwill 1,100,000

n'est%ent in 2addlestone ,100,000

(3)

B%o&ti7ation e*ense 400,000

dentifiable intan#ibles 400,000

E4%4 Elimiati* Etries a/ter 0irst a! Se)o! 1ears

a. alculation of equit/ in net inco%e fo& !014

2afecos &eo&ted net inco%e $ 1,600,000e'aluation w&iteoffs

qui%ent $-00,000- (100,000)

n'ento&/ (!00,000)

Goodwill i%ai&%ent loss (-0,000)

quit/ in net inco%e of 2afeco $ 1,!-0,000

Aee&lesss ent&ies fo& !014

n'est%ent in 2afeco 8,000,000

ash 8,000,000

n'est%ent in 2afeco 1,!-0,000

quit/ in net inco%e of2afeco 1,!-0,000

ash 600,000

n'est%ent in 2afeco 600,000

alculation of #oodwill is as follows


oo9 'alue of 2afeco (@,000,000)

*cess of acquisition cost o'e& boo9 'alue 1,000,000

ai& 'alue less boo9 'alue

qui%ent $ -00,000

n'ento&/ !00,000 (@00,000)

Goodwill $ 00,000


Solutions Manual, Chapter 4 $



E4%4 )otiue!

onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !014

()

quit/ in net inco%e of2afeco 1,!-0,000

?i'idends – 2afeco 600,000

n'est%ent in 2afeco 6-0,000

()

2toc9holde&s equit/H2afeco,11 @,000,000

n'est%ent in 2afeco @,000,000

()

qui%ent, net -00,000n'ento&/ !00,000

Goodwill 00,000


(3)

?e&eciation e*ense 100,000

ost of #oods sold !00,000

Goodwill i%ai&%ent loss -0,000

qui%ent, net 100,000

n'ento&/ !00,000

Goodwill -0,000

b. alculation of equit/ in net inco%e fo& !01-

2afecos &eo&ted net inco%e $ !,000,000

e'aluation w&iteoff

qui%ent $-00,000- (100,000)

quit/ in net inco%e of 2afeco $ 1,C00,000

Aee&lesss equit/ %ethod ent&ies fo& !01-

n'est%ent in 2afeco 1,C00,000

quit/ in net inco%e of 2afeco 1,C00,000

ash 800,000

n'est%ent in 2afeco 800,000


% Advaned Aounting, 2nd !dition



E4%4 )otiue!

Fhe n'est%ent in 2afeco balance at ?ece%be& 1, !01- is $8,000,000 + 1,!-0,000 –600,000 + 1,C00,000 – 800,000 = $C,@-0,000.

onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !01-

()

quit/ in net inco%e of 2afeco 1,C00,000

?i'idends – 2afeco 800,000


()

2toc9holde&s equit/H2afeco,11 8,000,000


2toc9holde&s equit/H2afeco at 11!01- = $@,000,000 + 1,600,000 – 600,000 =$8,000,000

()


Goodwill !-0,000

n'est%ent in 2afeco 6-0,000

(3)




Solutions Manual, Chapter 4 &



E4%2 E&uit' Met(o!, Elimiati* Etries, Se"eral 1ears a/ter A)&uisitio

a. alculation of total #oodwill is as follows


oo9 'alue of 3slo (!,-00,000)*cess of acquisition cost o'e& boo9 'alue ,-00,000


"and $ 4-0,000

uildin#s (400,000)

dentifiable intan#ibles 1,000,000

"on#>te&% debt !-0,000 (1,00,000)

Goodwill $ !,!00,000

b. alculation of quit/ in net inco%e fo& !014

3slos &e o&ted net inco%e $ 4-0,000e'aluation w&iteoffs

uildin#s $(400,000)!0 !0,000

"on#>te&% debt $!-0,00010 (!-,000)

Goodwill i%ai&%ent loss (60,000)

quit/ in net inco%e of 3slo $ 8-,000

c. alculation of n'est%ent in 3slo, 1!114

n'est%ent in 3slo, 1106 $ 6,000,000

3slos &eo&ted inco%e, !006>!01 4,000,000

3slos &eo&ted di'idends, !006>!01 (1,!00,000)e'aluation w&iteoffs, !006>!01

uildin#s $(400,000)!0 * 8 160,000

dentifiable intan#ibles (full balance) (1,000,000)

"on#>te&% debt $!-0,00010 * 8 (!00,000)

Goodwill i%ai&%ent loss (00,000)

n'est%ent in 3slo, 1114 @,460,000

quit/ in net inco%e, !014 8-,000

3slos di'idends, !014 (100,000)

n'est%ent in 3slo, 1!114 $ @,@4-,000





E4%2 )otiue!

d. onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !014

()

quit/ in net inco%e of 3slo 8-,000?i'idends – 3slo 100,000

n'est%ent in 3slo !8-,000

()

2toc9holde&s equit/H3slo, 11 -,00,000

n'est%ent in 3slo -,00,000

2toc9holde&s equit/, Danua&/ 1, !014 = $!,-00,000 + 4,000,000 – 1,!00,000 = $-,00,000.

()

"and 4-0,000

"on#>te&% debt -0,000Goodwill 1,C00,000

n'est%ent in 3slo !,160,000

uildin#s, net !40,000

e'aluations at Danua&/ 1, !014 = o&i#inal &e'aluations less w&iteoffs fo& !006>!01.

(3)

nte&est e*ense !-,000

uildin#s, net !0,000

Goodwill i%ai&%ent loss 60,000

"on#>te&% debt !-,000

?e&eciation e*ense !0,000Goodwill 60,000





E4%3 Cosoli!atio a/ter Se"eral 1ears

alculation of total #oodwill is as follows

Bcquisition cost $ @,-00,000

oo9 'alue of a9e& (-,000,000)*cess of acquisition cost o'e& boo9 'alue !,-00,000


uildin#s (1,000,000)

Goodwill $ 1,-00,000

alculation of equit/ in net inco%e fo& !01

a9e&s &eo&ted net inco%e $ 00,000


uildin#s $1,000,000!- (40,000)

Goodwill i%ai&%ent loss (100,000)quit/ in net inco%e of a9e& $ 160,000

alculation of in'est%ent balance at ?ece%be& 1, !01

n'est%ent in a9e&, 1!106 $ @,-00,000

a9e& &e o&ted inco%e, !00@>!01! 1,00,000

a9e& &eo&ted di'idends, !00@>!01! (400,000)

e'aluation w&iteoffs, !00@>!01!

uildin#s ($1,000,000!-) * 6 (!40,000)

n'est%ent in a9e&, 111 8,160,000

quit/ in net inco%e, !01 160,000?i'idends, !01 (100,000)

n'est%ent in a9e&, 1!11 $ 8,!!0,000


()

quit/ in net inco%e of a9e& 160,000

?i'idends – a9e& 100,000

n'est%ent in a9e& 60,000

()

2toc9holde&s equit/Ha9e&, 11 -,C00,000

n'est%ent in a9e& -,C00,000

2toc9holde&s equit/, Danua&/ 1, !01 = $-,000,000 + 1,00,000 – 400,000 = $-,C00,000.





E4%3 )otiue!

()

uildin#s, net @60,000

Goodwill 1,-00,000

n'est%ent in a9e& !,!60,000e'aluations at Danua&/ 1, !01 = o&i#inal &e'aluations less w&iteoffs fo& !00@>!01!.

(3)



uildin#s, net 40,000

Goodwill 100,000

E4% 5oo!6ill Im-airmet Losses

a. Goodwill is not a standalone asset, but &e&esents the 'alue of abo'e>a'e&a#e futu&e e&fo&%ance otential that cannot be assi#ned to identifiable assets such as &oe&t/ o&secific intan#ible assets. ecause e&fo&%ance otential is &elated to businessoe&ations, to %easu&e i%ai&%ents in its 'alue it %ust be connected with a secific business unit. n the case of Fi%e Ea&ne&, as discussed in the te*t of hate& 4, #oodwillis assi#ned to I5etwo&9sJ as a business unit. Fhe E 5etwo&9 was one a&t of this business unit, but did not co%&ise the enti&e unit.

b. i&st, Fi%e Ea&ne& has the otion to e&fo&% a qualitati'e anal/sis to dete&%ine if it is%o&e li9el/ than not that the business units boo9 'alue e*ceeds its fai& 'alue. f so, the

fai& 'alue of the business unit is calculated and co%a&ed with its boo9 'alue. f boo9'alue e*ceeds fai& 'alue, we dete&%ine the a%ount of the i%ai&%ent, if an/, b/co%a&in# the fai& 'alue of the #oodwill with its boo9 'alue. Bn i%ai&%ent loss is&eo&ted if boo9 'alue e*ceeds fai& 'alue.

2ince Fhe E 5etwo&9 was shut down, its futu&e e&fo&%ance will no lon#e& benefitFi%e Ea&ne&, and the i%ai&%ent cha&#e is a&o&iate. Kad the qualitati'e assess%entotion been a'ailable in !006, Fi%e Ea&ne& would li9el/ ha'e b/assed this otion dueto st&on# indicato&s that Fhe E 5etwo&9s futu&e cash flows we&e si#nificantl/i%ai&ed.

c. Fi%e Ea&ne& has a -0L inte&est in Fhe E, so unde& M.2. GBBA it does not ha'e acont&ollin# inte&est and &eo&ts its in'est%ent usin# the equit/ %ethod. Fi%e Ea&ne&sequit/ in the net inco%e of Fhe E is &eo&ted as a&t of consolidated othe& inco%e. Fhein'est%ent balance is &eo&ted as a&t of consolidated assets. Fhe Es indi'idual assets,liabilities, &e'enues and e*enses a&e not &eo&ted on the consolidated financialstate%ents.





E4%7 Pro8e)ti* Cosoli!atio Etries

a.()

"and 80,000

qui%ent, net 18,000n'est%ent in 2a%son C8,000

n'ento&/ has been sold, and the equi%ent &e'aluation as of the sta&t of the thi&d /ea& is$0,000 – (! * 6,000) = $18,000.

(3)


qui%ent, net 6,000

b.()

"and 80,000n'est%ent in 2a%son 80,000

n'ento&/ has been sold, and the equi%ent &e'aluation has been co%letel/ w&itten off.Fhe&efo&e no eli%inatin# ent&/ (3) is a&o&iate.

c. 5o eli%inatin# ent&ies a&e necessa&/ to &eco#ni7e o& w&ite off the &e'aluations, becausethe assets &equi&in# &e'aluation ha'e been eithe& sold o& w&itten off.





E4%9 I!eti/ia:le Ita*i:les a! 5oo!6ill, U%S% 5AAP

B%o&ti7ation e*ense fo& !014

usto%e& &elationshis $4,000,0004 $ 1,000,000

a'o&able leaseholds $8,000,000- 1,600,000

Fotal $!,600,000

%ai&%ent testin# – identifiable intan#ibles

usto%e& &elationshisoo9 'alue = $4,000,000 – ! * ($4,000,0004) = $!,000,000oo9 'alue : 2u% of undiscounted cash flows; $!,000,000 : $1,!00,000 <es%ai&%ent loss = $!,000,000 > $C00,000 = $1,100,000

a'o&able leaseholdsoo9 'alue = $8,000,000 – 1.- * ($8,000,000-) = $-,600,000

oo9 'alue : 2u% of undiscounted cash flows; $-,600,000 N $6,000,000 5o

&and na%esoo9 'alue = $18,000,000oo9 'alue : 2u% of discounted cash flows; $18,000,000 : $@,000,000 <es%ai&%ent loss = $18,000,000 > $@,000,000 = $11,000,000

%ai&%ent testin# – Goodwill

Re-orti* Uit Uit 0; < B;= 0air ;alue o/ 5+ 5+ im-airmet lossBsia $400,000,000 : $00,000,000

5o

2outh B%e&ica $-0,000,000: $!00,000,000 5o

u&oe $-00,000,000N $600,000,000<es

$-00,000,000 – 8-,000,000= 11-,000,000

$!-0,000,000 – 11-,000,000 =$1-,000,000

2u%%a&/B%o&ti7ation e*ense – identifiable intan#ibles $ !,600,000%ai&%ent losses – identifiable intan#ibles 1!,100,000Goodwill i%ai&%ent loss 1-,000,000

Fotal $14C,@00,000


Solutions Manual, Chapter 4 1"



E4%#> I!eti/ia:le Ita*i:les a! 5oo!6ill, I0RS


usto%e& &elationshis $4,000,0004 $ 1,000,000

a'o&able leaseholds $8,000,000- 1,600,000

Fotal $!,600,000

%ai&%ent testin# – identifiable intan#ibles

usto%e& &elationshisoo9 'alue = $4,000,000 – ! * ($4,000,0004) = $!,000,000oo9 'alue : 2u% of discounted cash flows; $!,000,000 : $C00,000 <es%ai&%ent loss = $!,000,000 > $C00,000 = $1,100,000

a'o&able leaseholdsoo9 'alue = $8,000,000 – 1.- * ($8,000,000-) = $-,600,000

oo9 'alue : 2u% of discounted cash flows; $-,600,000 : $4,400,000 <es%ai&%ent loss = $-,600,000 – $4,400,000 = $1,!00,000

&and na%esoo9 'alue = $18,000,000oo9 'alue : 2u% of discounted cash flows; $18,000,000 : $@,000,000 <es%ai&%ent loss = $18,000,000 > $@,000,000 = $11,000,000

%ai&%ent testin# – Goodwill

Re-orti* Uit Uit 0; < B;= 5+ im-airmet loss

. Bsia $1-0,000,000 N $!00,000,000 <es $!00,000,000 – 1-0,000 =$-0,000,000O i%ai&%ent li%ited to full#oodwill balance of $40,000,000.

ndonesia $1!0,000,000 : $100,000,000 5o

&a7il $140,000,000 :$10,000,000 5o

edite&&anean $1C0,000,000 N $!!0,000,000 <es $!!0,000,000 – 1C0,000,000 =$0,000,000

2candina'ia $!0,000,000 N $00,000,000 <es $00,000,000 – !0,000,000 =$@0,000,000

2u%%a&/B%o&ti7ation e*ense – identifiable intan#ibles $ !,600,000%ai&%ent losses – identifiable intan#ibles 1,00,000Goodwill i%ai&%ent loss 140,000,000

Fotal $1--,C00,000


1# Advaned Aounting, 2nd !dition



E4%## Cosoli!ate! I)ome Statemet

a.(amounts in millions)

2ales $-,000 + !,000 $@,000

ost of #oods sold $,000 + 800 + 160 ,C60G&oss %a&#in ,040

?e&eciation e*ense $-00 + 140 – (!0010) 6!0

nte&est e*ense $100 + 60 + (100-) 180

3the& e*enses $600 + @00 1,00

Fotal oe&atin# e*enses !,100

5et inco%e $ C40

b. Aa&son &eo&ts its own inco%e of $800 %illion lus its equit/ in the inco%e of 2oae& of$140 %illion. quit/ in the inco%e of 2oae& is 2oae&s &eo&ted inco%e adPusted fo&w&ite>offs of 2oae&s net asset &e'aluations. onsolidated inco%e is Aa&sons and

2oae&s &eo&ted &e'enues and e*enses, with 2oae&s e*enses adPusted fo& the&e'aluation w&iteoffs. Aa&sons sea&atel/ &eo&ted inco%e and consolidated inco%ethe&efo&e &eo&t the sa%e ite%s, ac9a#ed diffe&entl/.


Solutions Manual, Chapter 4 1$



E4%#$ Amorti?atio a! Im-airmet Testi* o/ I!eti/ia:le Ita*i:le Assets

a.

Te)(olo*'

B&&o/o $1-,000- * C1! = $ !,!-0

Eeb* $1!,0004 * 11! = 6,-00

Customer Relatios(i-s

B&&o/o $14,000@ * C1! = 1,-00

Eeb* $1-,0006 * 11! = !,1!-

Fotal a%o&ti7ation e*ense $ 1!,@-

b.

Te)(olo*'

@10@oo9

'alue

oo9 'alue:Mndiscounted

cash flows; %ai&%ent lossB&&o/o $ 1!,@-0 $1!,@-0:$14,000; 5o >> >>

Eeb* 0-,-00 $0-,-00:$00,000; <es $0-,-00>!-0,000 = $ --,-00

Customer

Relatios(i-s

B&&o/o 1!,-00 $1!,-00:$16,000; 5o >> >>

Eeb* 1-0,8@- $1-0,8@-:$140,000; <es $1-0,8@->100,000 = -0,8@-

Fotal i%ai&%ent loss $106,@-

c.

Te)(olo*'

Customer

Relatios(i-s

B&&o/o $ 1!,@-0 $ 1!,-00

Eeb* !-0,000 100,000

@10@ boo9 'alue $ !6!,@-0 $ 11!,-00


1% Advaned Aounting, 2nd !dition



E4%#. Cosoli!atio Usi* Cost Met(o!

alculation of total #oodwill is as follows

Bcquisition cost $ @,-00,000

oo9 'alue of a9e& (-,000,000)*cess of acquisition cost o'e& boo9 'alue !,-00,000


uildin#s (1,000,000)

Goodwill $ 1,-00,000

alculation of adPust%ent to in'est%ent balance to con'e&t it to co%lete equit/ %ethod atDanua&/ 1, !01

a9e& &eo&ted inco%e, !00@>!01! $ 1,00,000

a9e& &eo&ted di'idends, !00@>!01! (400,000)

e'aluation w&iteoffs, !00@>!01!uildin#s ($1,000,000!-) * 6 (!40,000)

BdPust%ent to n'est%ent in a9e&, 111 $ 660,000


(B)

n'est%ent in a9e& 660,000

2toc9holde&s equit/ –Bda% 660,000

()

?i'idend inco%e – Bda% 100,000?i'idends – a9e& 100,000

()

2toc9holde&s equit/Ha9e&, 11 -,C00,000

n'est%ent in a9e& -,C00,000

2toc9holde&s equit/, Danua&/ 1, !01 = $-,000,000 + 1,00,000 – 400,000 = $-,C00,000.

()

uildin#s, net @60,000

Goodwill 1,-00,000

n'est%ent in a9e& !,!60,000

e'aluations at Danua&/ 1, !01 = o&i#inal &e'aluations less w&iteoffs fo& !00@>!01!.

(3)



uildin#s, net 40,000

Goodwill 100,000


Solutions Manual, Chapter 4 1&



PROBLEMS

P4%# Co!ese! Cosoli!ate! 0ia)ial Statemets Oe 1ear a/ter A)&uisitio


2antos &eo&ted net inco%e $ -,000,000


n'ento&/ (1) (!,000,000)

Alant assets $8,000,0008 (1,000,000)

Aatents $1,-00,0004 (@-,000)

"on#>te&% debt $1,000,00010 100,000

Goodwill i%ai&%ent loss (400,000 )

quit/ in net inco%e of 2anto $ 1,!-,000

(1) 2antos be#innin# in'ento&/ on its own boo9s is $,000,000 (= $-,!00,000 +

4,000,000 – 6,!00,000). 2ince 2antos cost of #oods sold is $4,000,000, its be#innin# in'ento&/ is co%letel/ sold in !014, and the &e'aluation is w&itten off.

b.

Cosoli!atio +ori* Pa-er, De)em:er .#, $>#4Trial Bala)es Tae 0rom

Boos

Dr @Cr

Elimiatios

Poo Sato Dr Cr

Cosoli!ate!

Bala)es

ash and &ecei'ables $ 4,-00,000 $ ,100,000 $ @,600,000

n'ento&/ -,000,000 -,!00,000 () !,000,000 !,000,000 (3>1) 10,!00,000Alant assets, net 8,000,000 1!,000,000 () 8,000,000 1,000,000 (3>!) !@,000,000

n'est%ent in 2anto !6,!-,000 >> 1,!-,000 ()10,000,000 ()1-,000,000 ()

>>

Aatents >> >> () 1,-00,000 @-,000 (3>) 1,1!-,000

Goodwill >> >> () 4,-00,000 400,000 (3>-) 4,100,000

u&&ent liabilities (-,100,000) (!,000,000) (@,100,000)

"on#>te&% debt (!0,000,000) (,00,000) (3>4) 100,000 1,000,000 () (!4,!00,000)

aital stoc9 (8,000,000) (6,000,000) () 6,000,000 (8,000,000)

etained ea&nin#s, Dan. 1 (4,800,000) (4,000,000) () 4,000,000 (4,800,000)

2ales (0,000,000) (1,!00,000) (4,!00,000)

quit/ in inco%e of 2antos (1,!-,000) >> () 1,!-,000 >>ost of #oods sold 18,000,000 4,000,000 (3>1) !,000,000 !4,000,000

?e&eciation anda%o&ti7ation e*ense

!,000,000 ,!00,000 (3>!) 1,000,000(3>) @-,000 6,-@-,000

nte&est and othe& e*enses -,400,000 1,000,000 100,000 (3>4) 6,00,000

GE i%ai&%ent loss >> >> (3>-) 400,000 QQQQQQQ 400,000

$ >0 > $ >0 > $ 1,!00,000 $1,!00,000 $ >0>





P4%# )otiue!

c.

Cosoli!ate! Statemet o/ I)ome a! Retaie! Eari*s 0or t(e 1ear $>#4

2ales $ 4,!00,000

osts of #oods sold (!4,000,000 )G&oss %a&#in 1C,!00,000

3e&atin# e*enses

?e&eciation and a%o&ti7ation e*ense $ 6,-@-,000

nte&est and othe& e*enses 6,00,000

Goodwill i%ai&%ent loss 400,000 (1,!@-,000 )

5et inco%e -,C!-,000

etained ea&nin#s, be#innin# balance 4,800,000

etained ea&nin#s, endin# balance $ 10,@!-,000

Cosoli!ate! Bala)e S(eet, De)em:er .#, $>#4

Assetsash and &ecei'ables $ @,600,000

n'ento&/ 10,!00,000

Alant assets, net !@,000,000

Aatents 1,1!-,000

Goodwill 4,100,000

Fotal assets $ -0,0!-,000

Lia:ilities a! sto)(ol!ers e&uit'

u&&ent liabilities $ @,100,000

"on#>te&% debt !4,!00,000

aital stoc9 8,000,000

etained ea&nin#s 10,@!-,000

Fotal liabilities and stoc9holde&s equit/ $ -0,0!-,000





P4%$ E&uit' Met(o! a! Elimiati* Etries T(ree 1ears a/ter A)&uisitio


2unset oasts &eo&ted net inco%e fo& !014 $ !00,000

e'aluation w&iteoffsAlant assets ($1,000,000)10 100,000

dentifiable intan#ibles $,600,000!0 (180,000 )

quit/ in net inco%e of 2unset oast $ 1!0,000

5ote dentifiable intan#ibles at the date of acquisition a&e $!,100,000 + -00,000 +1,000,000 = $,600,000.

b. alculation of in'est%ent balance at ?ece%be& 1, !014

n'est%ent in 2unset oast, ?ece%be& 1, !011 $ ,-00,000

2unset oasts &eo&ted inco%e, !01!>!014 8-0,0002unset oasts &eo&ted di'idends, !01!>!014 (-0L of&eo&ted inco%e) (4!-,000)

e'aluation w&iteoffs, !01!>!014

Alant assets ($1,000,000)10 * 00,000

dentifiable intan#ibles ($,600,000!0) * (-40,000 )

n'est%ent in 2unset oast, ?ece%be& 1, !014 $ ,68-,000

5ote to inst&ucto& Mnde& "3 and inc&easin# in'ento&/, the acquisition date&e'alued in'ento&/ is assu%ed to still be on hand.

c. onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !014

()

quit/ in net inco%e of 2unsetoast 1!0,000

?i'idends – 2unsetoast (.- * $!00,000) 100,000

n'est%ent in 2unsetoast !0,000





P4%$ )otiue!

()

2toc9holde&s equit/H2unsetoast, 11 1,@!-,000

n'est%ent in 2unsetoast 1,@!-,000

2unset oasts stoc9holde&s equit/, ?ece%be& 1, !011 = $1,400,000 (acquisition cost$,-00,000 less e*cess o'e& boo9 'alue $!,100,000).

2unset oasts stoc9holde&s equit/, Danua&/ 1, !014 = $1,400,000 + (1 > .-)(8-0,000 –!00,000) = $1,@!-,000.

()

dentifiable intan#ibles ,!40,000

n'ento&/ -00,000

Alant assets, net 800,000n'est%ent in 2unsetoast 1,C40,000

e'aluations at Danua&/ 1, !014 = o&i#inal &e'aluations less w&iteoffs fo& !01! and !01.

(3)

Alant assets, net 100,000




d. Auffins inco%e f&o% its own oe&ations lus equit/ in net inco%e of 2unset oast =consolidated net inco%e $600,000 + $1!0,000 = $@!0,000.





P4%. Cosoli!atio at E! o/ 0irst 1ear, Prea)&uisitio Coti*e)'


2ande&s &eo&ted net inco%e fo& !01 $ -00,000


n'ento&/ $80,000 * 60L (48,000)qui%ent $!00,00010 (!0,000 )

quit/ in net inco%e of 2ande&s $ 4!,000

Ae&9insent&ies fo& !01

n'est%ent in 2ande&s 4,000,000

e&#e& e*enses -0,000

est&uctu&in# e*enses 100,000

ash 4,1-0,000

n'est%ent in 2ande&s 4!,000

quit/ in net inco%e of2ande&s 4!,000

ash 1-0,000

n'est%ent in 2ande&s 1-0,000

b. onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !01

()

quit/ in net inco%e of2ande&s 4!,000

?i'idends – 2ande&s 1-0,000n'est%ent in 2ande&s !8!,000

()

2toc9holde&s equit/H 2ande&s, 11 !,!00,000

n'est%ent in 2ande&s !,!00,000





P4%. Cosoli!atio at E! o/ 0irst 1ear, Prea)&uisitio Coti*e)'

()

n'ento&/ 80,000

qui%ent, net !00,000

n>&ocess &esea&ch andde'elo%ent 00,000

Goodwill 1,0-,000

"awsuit liabilit/ 8-,000

n'est%ent in 2ande&s 1,800,000

5ote ecause the chan#e in the lawsuit liabilit/ occu&s within the %easu&e%ent e&iod,the inc&eased liabilit/ 'alue inc&eases acquisition date #oodwill.

(3)

ost of #oods sold 48,000

?e&eciation e*ense !0,000n'ento&/ 48,000

qui%ent, net !0,000

P4%4 Cosoli!ate! Bala)e S(eet +ori* Pa-er, Bar*ai Pur)(ase @see relate! P.%4



2a*ons &eo&ted net inco%e fo& !01 ($10,000 + 10 – 8,000 – 40 – !- – 1,600) $ 4-e'aluation w&iteoffs

n'ento&/ (100)

a&9etable secu&ities -0

uildin#s and equi%ent $00!0 (1-)

"on#>te&% debt $110- (!! )

quit/ in net inco%e of 2a*on $ !-8

alculation of n'est%ent balance, ?ece%be& 1, !01

n'est%ent balance, ?ece%be& 1, !01! (1) $!,000

quit/ in net inco%e fo& !01 !-8?i'idends fo& !01 (100)

n'est%ent balance, ?ece%be& 1, !01 $!,1-8

(1) Aa*on acqui&ed 2a*on fo& $1,800, but the&e is a ba&#ain #ain that inc&eases thein'est%ent balance b/ $!00, as follows





P4%4 )otiue!

alculation of #ain on acquisition

Bcquisition cost $ 1,800

oo9 'alue ($100 + -0 + 84-) (1,!C- )

*cess of acquisition cost o'e& boo9 'alue -0-*cess of fai& 'alue o'e& boo9 'alue

n'ento&/ $ 100

a&9etable secu&ities (-0)

"and !4-

uildin#s and equi%ent 00

"on#>te&% debt (discount) 110 @0-

Gain on acquisition $ !00

Fhe&efo&e Aa*ons ent&/ to &eco&d the acquisition was

n'est%ent in 2a*on !,000ash 1,800

Gain on acquisition !00

b.Cosoli!atio +ori* Pa-er, De)em:er .#, $>#.

Trial Bala)es Tae

0rom Boos

Dr @Cr

Elimiatios

Pao Sao Dr Cr

Cosoli!ate!

Bala)esash and &ecei'ables $ ,100 $ 800 $ ,C00

n'ento&/ !,!60 C40 () 100 100 (3>1) ,!00a&9etable secu&ities >> >> (3>!) -0 -0 () >>

n'est%ent in 2a*on !,1-8 >> 1-8 ()1,!C- ()

@0- ()

>>

"and 6-0 00 () !4- 1,1C-

uildin#s and equi%ent, net ,600 1,1-0 () 00 1- (3>) -,0-

u&&ent liabilities (!,0!0) (1,!00) (,!!0)

"on#>te&% debt (-,000) (4-0) () 110 !! (3>4) (-,6!)

o%%on stoc9 (-00) (100) () 100 (-00)

Bdditional aid>in caital (1,!00) (-0) () -0 (1,!00)

etained ea&nin#s, Dan. 1 (!,610) (84-) () 84- (!,610)

?i'idends -00 100 100 () -00

2ales &e'enue (0,000) (10,000) (40,000)

quit/ in inco%e of 2a*on (!-8) >> () !-8 >>

Gain on sale of secu&ities >> (10) -0 (3>!) (60)

ost of #oods sold !6,000 8,000 (3>1) 100 4,100

?e&eciation e*ense 00 40 (3>) 1- --

nte&est e*ense !-0 !- (3>4) !! !C@

3the& oe&atin# e*enses !,@@0 1,600 QQQQQQ QQQQQQQ 4,@0

$ >0 > $ >0 > $ !,4C- $ !,4C- $ >0 >





P4%4 )otiue!

c.

Cosoli!ate! Statemet o/ I)ome a! Retaie! Eari*s 0or t(e 1ear $>#.

2ales $ 40,000

osts of #oods sold (4,100 )G&oss %a&#in -,C00

3e&atin# e*enses

?e&eciation e*ense $ --

nte&est e*ense !C@

3the& oe&atin# e*enses 4,@0 (-,0!! )

nco%e befo&e othe& #ains 8@8

Gain on sale of secu&ities 60

5et inco%e C8

etained ea&nin#s, Danua&/ 1 !,610

?i'idends (-00 )

etained ea&nin#s, ?ece%be& 1 $ ,048

Cosoli!ate! Bala)e S(eet, De)em:er .#, $>#.

Assets

ash and &ecei'ables $ ,C00

n'ento&/ ,!00

"and 1,1C-

uildin#s and equi%ent, net -,0-

Fotal assets $ 1,0


u&&ent liabilities $ ,!!0

"on#>te&% debt -,6!

o%%on stoc9 -00

Bdditional aid>in caital 1,!00

etained ea&nin#s ,048

Fotal liabilities and stoc9holde&s equit/ $ 1,0





P4%2 5oo!6ill Allo)atio a! Im-airmet

a.

dentifiable assets acqui&ed $ 60,000,000

"iabilities assu%ed (!-,000,000 )

5et identifiable assets acqui&ed -,000,000Fotal acquisition cost @-,000,000

Fotal #oodwill $ 40,000,000

Bllocation to business units

Mnit R Mnit < Mnit S Fotal

dentifiable assets acqui&ed $ !,000,000 $!0,000,000 $ 8,000,000 $ 60,000,000

"iabilities assu%ed (18,000,000 ) (6,000,000 ) (1,000,000 ) (!-,000,000 )

5et assets assi#ned $ 14,000,000 $14,000,000 $ @,000,000 $ -,000,000

Mnit R Mnit < Mnit S Mnit D

ai& 'alue of &eo&tin# unit $ -0,000,000 $ 0,000,000 $1-,000,000

"ess 5et assets assi#ned (14,000,000) (14,000,000) (@,000,000)

nc&ease in fai& 'alue QQ 5BQQQ QQQ5BQQQ QQQ5BQQQ $!0,000,000

Fentati'e allocation of#oodwill 6,000,000 16,000,000 8,000,000 !0,000,000

Fotal tentati'e allocation is$80,000,000O #oodwill to beassi#ned is $40,000,000.

-0L &eduction (18,000,000 ) (8,000,000 ) (4,000,000 ) (10,000,000 )Bllocation of #oodwill $ 18,000,000 $ 8,000,000 $ 4,000,000 $10,000,000





P4%2 )otiue!

b. 2te 1 of i%ai&%ent test o%a&e the fai& 'alue of each &eo&tin# unit at ?ece%be& 1,!014 with its boo9 'alue at that date.

Mnit R Mnit < Mnit S Mnit Dai& 'alue at?ece%be& 1, !014 $0,000,000 $ 1-,000,000 $ 1!,000,000 $ @-,000,000

oo9 'alue at?ece%be& 1, !014 4,000,000 !0,000,000 10,000,000 @!,000,000

?iffe&ence $( 4,000,000 ) $(-,000,000) $!,000,000 $(!,000,000 )

A&eli%ina&/conclusion

a/ bei%ai&ed

a/ bei%ai&ed

5ot i%ai&ed 5ot i%ai&ed

2te ! of the i%ai&%ent test o& those &eo&tin# units whe&e #oodwill %a/ be i%ai&ed,calculate the i%lied fai& 'alue of #oodwill at ?ece%be& 1, !014 and co%a&e to the

boo9 'alue of #oodwill at that date.

Mnit R Mnit <

ai& 'alue of &e o&tin# unit $ 0,000,000 $ 1-,000,000

ai& 'alue of identifiable net assets at ?ece%be&1, !014 !,000,000 6,000,000

%lied 'alue of #oodwill @,000,000 C,000,000

oo9 'alue of #oodwill 18,000,000 8,000,000

?iffe&ence $ (11,000,000) $ 1,000,000

onclusionGoodwill is

i%ai&edGoodwill isnot i%ai&ed

Goodwill is i%ai&ed fo& eo&tin# Mnit R. Bn $11,000,000 #oodwill i%ai&%ent lossshould be &eco&ded at ?ece%be& 1, !014.





P4%3 Ita*i:le Assets a! 5oo!6ill Amorti?atio a! Im-airmet

!01 a%o&ti7ation e*ense

usto%e& lists $-00,000- $ 100,000

?e'eloed technolo#/ $800,00010 80,000Fotal $ 180,000

!01 i%ai&%ent test fo& identifiable intan#ibles

usto%e& lists

?e'eloedtechnolo#/

nte&netdo%ain na%e

3&i#inal boo9 'alue $ -00,000 $ 800,000 $ 1,00,000

"ess a%o&ti7ation

!011 (100,000) (80,000) –

!01! (100,000) (80,000) –

!01 (100,000 ) (80,000 ) QQQ–QQQQQ oo9 'alue, ?ece%be& 1, !01 $ !00,000 $ -60,000 $ 1,00,000

2te 1 of i%ai&%ent test Fo dete&%ine whethe& i%ai&%ent has occu&&ed, co%a&e theundiscounted futu&e cash flows f&o% the asset to its boo9 'alue.

usto%e& lists

?e'eloedtechnolo#/

nte&netdo%ain na%e

utu&e undiscounted cash flows $ !-0,000 $ -00,000 $ 1,000,000

oo9 'alue !00,000 -60,000 1,00,000

?iffe&ence $ -0,000 $ (60,000 ) $ (00,000 )

onclusion 5ot i% ai&ed %ai&ed %ai&ed

2te ! of i%ai&%ent test o& intan#ibles that a&e dee%ed i%ai&ed in 2te 1, calculate a%ountof i%ai&%ent as the diffe&ence between discounted cash flows and boo9 'alue.

?e'eloedtechnolo#/

nte&netdo%ain na%e

utu&e discounted cash flows $ 4!0,000 $ @-0,000

oo9 'alue -60,000 1,00,000

%ai&%ent $ 140,000 $ --0,000





P4%3 )otiue!

!01 #oodwill i%ai&%ent test

2te 1 of i%ai&%ent test co%a&e fai& 'alue of &eo&tin# unit at ?ece%be& 1, !01 to the boo9

'alue of the unit at that date.

ai& 'alue of &eo&tin# unit $1@,000,000

oo9 'alue 18,-00,000

?iffe&ence $(1,-00,000 )

onclusion Goodwill %a/ be i%ai&ed.

2te ! of i%ai&%ent test alculate the i%lied fai& 'alue of #oodwill at ?ece%be& 1, !01 andco%a&e to the boo9 'alue at that date.

ai& 'alue of &eo&tin# unit $ 1@,000,000ai& 'alue of identifiable net assets 14,!00,000

%lied fai& 'alue of #oodwill !,800,000

oo9 'alue of #oodwill 6,!00,000

?iffe&ence $ (,400,000 )

onclusion Goodwill i%ai&%ent loss is $,400,000.

2u%%a&/


usto%e& lists $ 100,000 ?e'eloed technolo#/ 80,000 $ 180,000

% ai&%ent w&ite>offs fo& !01

?e'eloed technolo#/ $ 140,000

nte&net do%ain na%e --0,000

Goodwill ,400,000 4,0C0,000

Fotal e*ense fo& !01 $ 4,!@0,000





P4% Cosoli!ate! Bala)e S(eet +ori* Pa-er, T(ree 1ears a/ter A)&uisitio @see

relate! P.%$


a. alculation of equit/ in net inco%e fo& fiscal !011, !01!, and !01

$>## $>#$ $>#.

G3s &eo&ted net inco%e (loss) $ 1- $ (!) $ 1! (1)


A&oe&t/, lant and equi%ent $(60)!0

Aatents and t&ade%a&9s $10- (!) (!) (!)

"on#>te&% debt $() 1 1 1

Bd'anced technolo#/ $-- (1) (1) (1)

usto%e& lists i%ai&%ent loss (!) (4)

Goodwill i%ai&%ent loss Q(!) Q() Q(!)

quit/ in net inco%e of G3 $ 14 $ (6) $ @

(1) $1! = $C00 – 800 – 88

alculation of n'est%ent balance, Dune 0, !01

n'est%ent balance, Dune 0, !010 (adPusted to &e%o'e ea&nin#s contin#enc/) $ 110

quit/ in net inco%e fo& fiscal !011 14

quit/ in net inco%e fo& fiscal !01! (6)

quit/ in net inco%e fo& fiscal !01 @

nc&ease in G3s B3 fo& fiscal !011>!01 (= $- – ) QQ!

n'est%ent balance, Dune 0, !01 $ 1!@





P4% )otiue!

b.

Cosoli!atio +ori* Pa-er, ue .>, $>#.Trial Bala)es

Tae 0rom BoosDr% @Cr%

Elimiatios

ITI 5OC Dr Cr

Cosoli!ate!

Bala)es

u&&ent assets $ !! $ 1! () - $ !4C

A&oe&t/, lant andequi%ent, net

600 140 (3>1) -4 () 68C

dentifiable intan#ible assets 1,100 0 () 6() () !

! (3>!)1 (3>4)4 (3>-)

1,1--

n'est%ent in G3 1!@ >> @ ()-- ()

6- ()

>>

Goodwill (1) >> >> () 8 ! (3>6) 81

u&&ent liabilities (1@-) (10) (18-)

"on#>te&% liabilities (1,1!-) (10-) (3>) 1 1 () (1,!0)

o%%on stoc9 (!!) (4) () 4 (!!)

Bdditional aid>in caital (-80) (60) () 60 (-80)

etained ea&nin#s, Dul/ 1 (118) 1! 1! () (118)

Bccu%ulated othe&co%&ehensi'e inco%e (!0) (-) () - (!0)

F&easu&/ stoc9 8 ! ! () 8

2ales &e'enue (!,000) (C00) (!,C00)

quit/ in inco%e of 2a*on (@) >> () @ >>

ost of #oods sold 1,400 800 !,!00Goodwill i%ai&%ent loss >> >> (3>6) ! !

3the& oe&atin# e*enses -80

QQQQQ

88

QQQQQ

(3>!) !(3>4) 1(3>-) 4

(3>1)1 (3>)

QQQQQQQ

QQQQ6@1

$ >0 > $ >0 > $ !0C $ !0C $ >0 >

(1) Bcquisition>date #oodwill is calculated as follows

Bcquisition cost (adPusted) $ 110

G3s boo9 'alue (40 )

*cess of acquisition cost o'e& boo9 'alue @0

*cess of fai& 'alue o'e& boo9 'aluen'ento&/ $ -

A&oe&t/, lant and equi%ent (60)

Aatents and t&ade%a&9s 10

Bd'anced technolo#/ -

usto%e& lists !-

"on#>te&% debt ( ) Q(18 )

Goodwill $ 88





P4% )otiue!

c.

Cosoli!ate! Statemet o/ I)ome a! Retaie! Eari*s 0or 0is)al $>#.

2ales &e'enue $ !,C00

osts of #oods sold (!,!00 )G&oss %a&#in @00

3e&atin# e*enses

Goodwill i%ai&%ent loss $ !

3the& oe&atin# e*enses Q6@1 QQ6@

5et inco%e !@

etained ea&nin#s, be#innin# balance QQ118

etained ea&nin#s, endin# balance $ 14-

Cosoli!ate! Bala)e S(eet, ue .>, $>#.

Assets

u&&ent assets $ !4CA&oe&t/, lant and equi%ent, net 68C

dentifiable intan#ible assets 1,1--

Goodwill QQ81

Fotal assets $ !,1@4


u&&ent liabilities $ 18-

"on#>te&% liabilities 1,!0

o%%on stoc9 !!

Bdditional aid>in caital -80

etained ea&nin#s 14-

Bccu%ulated othe& co%&ehensi'e inco%e !0

F&easu&/ stoc9 QQ(8)

Fotal liabilities and stoc9holde&s equit/ $ !,1@4





P4%7 +ori* Pa-er Elimiati* Etries, Partial 1ear Cosoli!atio @see relate! P.%.

(all numbers in millions)

a. alculation of quit/ in net inco%e fo& !00

Aha&%acias &eo&ted net inco%e $ -,000


n'ento&/ (!,CC)

A&oe&t/, lant and equi%ent $(1@)!0 * 8.-1! 11

n>&ocess &esea&ch and de'elo%ent (@16)

?e'eloed technolo#/ &i#hts $1,-C611 * (8.-1!) (!,0-)

"on#>te&% debt 1!

3the& assets $(1-,606)10 * (8.-1!) 1,10-

quit/ in net inco%e of Aha&%acia $ 48

b. onsolidation wo&9in# ae& eli%inatin# ent&ies fo& !00

()

quit/ in net inco%e of Aha&%acia 48

n'est%ent in Aha&%acia 48

()

2toc9holde&s equit/HAha&%acia,4160 @,!6

n'est%ent in Aha&%acia @,!6

()n'ento&/ !,CC

"on#>te&% in'est%ents 40

n>&ocess T? -,0-!

?e'eloed technolo#/ &i#hts @,066

Goodwill !1,04

A&oe&t/, lant andequi%ent 1@

"on#>te&% debt 1,841

3the& assets 1-,606

n'est%ent in Aha&%acia 48,6@





P4%7 )otiue!

(3)

ost of #oods sold !,CC

A&oe&t/, lant and equi%ent 11

%ai&%ent loss @16B%o&ti7ation e*ense !,0-

"on#>te&% debt 1!

3the& assets 1,10-

n'ento&/ !,CC

?e&eciation e*ense 11

n>&ocess &esea&ch andde'elo%ent @16

?e'eloed technolo#/&i#hts !,0-

nte&est e*ense 1!

3the& oe&atin# e*enses 1,10-

P4%9 5oo!6ill Im-airmet Testi*, I0RS a! U%S% 5AAP

a. As !010 annual &eo&t states the followin#

Fhe futu&e cash flows a&e adPusted fo& &is9s secific to the cash>#ene&atin# unit and a&e discounted usin# a &e>ta* discount &ate. Fhe discount &ate is de&i'ed f&o% the #&ous ost>ta* wei#hted a'e&a#e cost ofcaital and is adPusted whe&e alicable to ta9e into account an/ secific &is9 &elatin# to the count&/ whe&ethe cash>#ene&atin# unit is located.

ash flows a&e adPusted fo& secific &is9s and the alicable ta* effects befo&e the/ a&ediscounted, the&eb/ ta9in# into conside&ation diffe&ences in the unce&taint/ of the business en'i&on%ent. ost li9el/ the cash flows of *lo&ation and A&oduction se#%entGMs a&e %o&e unce&tain than those of efinin# and a&9etin#, althou#h the twose#%ents a&e closel/ &elated.

f the cash flows we&e not adPusted, the discount &ate should be adPusted to &eflectdiffe&ences in &is9.





P4%9 )otiue!

b. E-loratio a! Pro!u)tio

C5U ;alue i use Boo "alue Im-airmet loss

MU $ C,000 $ 1,114 5oneM2 -,000 6,144 5one

est of wo&ld !,-00 !,840 $ 40

Fotal $ 46,-00 $ 10,0C8

Re/ii* a! Mareti*

C5U ;alue i use Boo "alue Im-airmet loss

hine V $ 1,000 $ 1,--@ 5one

"ub&icants 6,000 1,C8 5one

3the& 4,000 4,880 $ 880

Fotal $ !,000 $ 8,@-

Fotal #oodwill i%ai&%ent loss is $40 + 880 = $1,!!0

c. $!,840 – !,140 = $@00, su##estin# a GE i%ai&%ent loss of that a%ount. Kowe'e&, total#oodwill allocated to the est of Eo&ld GM is $60. Fhe&efo&e, the #oodwilli%ai&%ent loss is $60, and othe& assets of the GM would be w&itten down, based ona&o&iate i%ai&%ent tests.

d. M.2. GBBA &equi&es #oodwill to be assi#ned to &eo&tin# units, in this case *lo&ationand A&oduction, and efinin# and a&9etin#. Ehen testin# fo& i%ai&%ent, A has the

otion to e&fo&% a qualitati'e assess%ent of each &eo&tin# unit, usin# econo%ic,financial, and st&ate#ic facto&s, to dete&%ine if it is %o&e li9el/ than not that the units boo9 'alue e*ceeds its fai& 'alue. f so, the &eo&tin# units #oodwill is e'aluated usin# atwo>ste test. Goodwill is tested fo& i%ai&%ent onl/ if the esti%ated fai& 'alue of the&eo&tin# unit is in fact less than its boo9 'alue. ecause fai& 'alue is #ene&all/calculated usin# discounted cash flows, we assu%e it can be a&o*i%ated b/ 'alue>in>use. o& both &eo&tin# units abo'e, 'alue in use si#nificantl/ e*ceeds boo9 'alue, so noi%ai&%ent loss is &eo&ted, whethe& A uses o& b/asses the qualitati'e test.

ecause &eo&tin# units a##&e#ate GMs, it is li9el/ that GMs with boo9 'alue #&eate&than 'alue in use will be offset b/ those with a 'alue in use that is #&eate& than boo9 'alue

when al/in# the fi&st ste fo& i%ai&%ent testin# unde& M.2. GBBA.





P4%#> Cosoli!atio Oe a! T6o 1ears a/ter A)&uisitio

a. Fhe in'est%ent cost a%ounts to $-C8,000,000 = ($-C0,000,000 – $1-,000,000) +$!,000,000, and the $!48,000,000 e*cess of acquisition cost o'e& boo9 'alue($-C8,000,000 – $-0,000,000) is allocated as follows, with #oodwill bein# the &esidual

at the botto%

*cess of acquisition cost o'e& boo9 'alue $ !48,000,000

Bllocation to identifiable ite%s

n'ento&ies (0,000,000)

dentifiable intan#ibles (->/ea& life) (40,000,000)

n>&ocess &esea&ch and de'elo%ent (A?) (60,000,000)

Alant assets (!0>/ea& life, st&ai#ht>line) (-0,000,000 )

Goodwill (unallocated balance) $ 68,000,000

b. !00@ equit/ inco%e acc&ual

sse*s &e o&ted net inco%e $ 140,000,000

e'aluation w&ite>offs

3 in'ento&/ sold (.4 R $0,000,000) (1!,000,000)

B%o&ti7ation of identifiable intan#ibles ($40,000,000-) (8,000,000)

?e&eciation of lant assets ($-0,000,000!0) (!,-00,000)

Goodwill i%ai&%ent (1-,000,000)

quit/ inco%e acc&ual $ 10!,-00,000

?ece%be& 1, !00@ wo&9in# ae& eli%inations

()quit/ inco%e acc&ual 10!,-00,000

?i'idends – sse* (.-- *$140,000,000) @@,000,000

n'est%ent in sse* !-,-00,000

()

2toc9holde&s equit/ – sse*,1!-0@

-0,000,000

n'est%ent in sse* -0,000,000





P4%#> )otiue!

()

n'ento&ies 0,000,000


n>&ocess &esea&ch andde'elo%ent 60,000,000

Alant assets -0,000,000

Goodwill 68,000,000

n'est%ent in sse* !48,000,000

(3)

ost of #oods sold 1!,000,000

B%o&ti7ation e*ense 8,000,000

?e&eciation e*ense !,-00,000

Goodwill i%ai&%ent loss 1-,000,000

n'ento&ies 1!,000,000dentifiable intan#ibles 8,000,000

Bccu%ulatedde&eciation !,-00,000

Goodwill 1-,000,000

c. !008 equit/ inco%e acc&ual

sse*s &eo&ted net inco%e $160,000,000

e'aluation w&ite>offs

B%o&ti7ation of identifiable intan#ibles ($40,000,000-) (8,000,000)

?e&eciation of lant assets ($-0,000,000!0) (!,-00,000)A? i%ai&%ent (!0,000,000)

quit/ inco%e acc&ual $1!C,-00,000

?ece%be& 1, !008, wo&9in# ae& eli%inations

()

quit/ inco%e acc&ual 1!C,-00,000

?i'idends – sse* (.-- *$160,000,000) 88,000,000

n'est%ent in sse* 41,-00,000





P4%#> )otiue!

()

2toc9holde&s equit/ – sse*,1108 (1) 41,000,000

n'est%ent in sse* 41,000,000(1) $-0,000,000 + $140,000,000 > $@@,000,000

()

n'ento&ies (.6 *$0,000,000) 18,000,000

dentifiable intan#ibles !,000,000

n>&ocess &esea&ch andde'elo%ent 60,000,000

Alant assets -0,000,000

Goodwill -,000,000

Bccu%. de&eciation !,-00,000n'est%ent in sse* !10,-00,000

(3)

B%o&ti7ation e*ense 8,000,000

?e&eciation e*ense !,-00,000

A? i%ai&%ent loss !0,000,000


Bccu%ulatedde&eciation !,-00,000

A? !0,000,000





P4%## Ita*i:les u!er I0RS

a. Ehe&eas the double>declinin# balance &ate is twice the st&ai#ht>line &ate, 1-0L declinin# balance is 1.- * 10L st&ai#ht>line &ate, o& 1-L. ollowin# the con'entional declinin#> balance calculations, we ha'e this a%ount of a%o&ti7ation e*ense fo& !01, the second

/ea& afte& acquisition

B%o&ti7ation e*ense = .1- * W!00 %illion – (.1- * !00 %illion) = W!-.- %illion

b. Bt ?ece%be& 1, !01!, the boo9 'alue is W6 %illion afte& !01! a%o&ti7ation of W4%illion, and the %a&9et 'alue of these intan#ibles is W4- %illion.

?ece%be& 1, !01! ent&ies a&e (all amounts in millions)

B%o&ti7ation e*ense 4

ntan#ible assets 4

ntan#ible assets C

e'aluation su&lus (3) C

?ece%be& 1, !01, ent&ies a&e

B%o&ti7ation e*ense -

ntan#ible assets -

W4- %illionC = W- %illion

e'aluation su&lus (3) C

"oss (inco%e) 1ntan#ible assets 10

Bt this oint the endin# boo9 'alue is W0 %illion (= W40 – 4 + C – - – 10, equal to the%a&9et 'alue on that date.

c. 2 i%ai&%ent loss = boo9 'alue – #&eate& of ('alue>in>use, W1,800 %illionO %a&9et'alue, W1,-00 %illion) = W!,000 – 1,800 = W!00 %illion.

M.2. GBBA i%ai&%ent loss = 0 (su% of undiscounted cash flows W!,-00 %illion : boo9'alue, W!,000 %illion, indicatin# Ino i%ai&%entJ).

Fhe two>ste test in M.2 GBBA &e%o'es so%e otential i%ai&%ents f&o% conside&ation because of the boo9 'alue undiscounted cash flows sc&een. 2 di&ectl/ co%a&es fai&'alue (%a&9et 'alue o& 'alue>in>use, whiche'e& is hi#he&) with boo9 'alue. 2ince fai&'alue is lowe& than the su% of the undiscounted cash flows, 2 will li9el/ &eco#ni7e%o&e i%ai&%ent losses o'e& ti%e than M.2. GBBA.





P4%#$ Cosoli!atio i 0irst 1ear, Ita*i:le Asset Issues

(all dollar amounts in millions)a. 5et Bssets = Bssets > "iabilities

$!6,C00 = $(!0,800 + C,400 + 4,800) – "iabilities

"iabilities = $-,000 – $!6,C00"iabilities = $8,100

b. Goin# Ib/ the boo9,J the question is si%l/ whethe& useful li'es can be &easonabl/esti%ated o& whethe& the intan#ible has an ob'iousl/ 'e&/ lon# indete&%inate (indefinite)life. an/ cases will be clea&>cut and can be Pustified to the audito&s but othe&s will be in#&a/ a&eas such that the desi&ed &eo&tin# &esult will call fo&th the case Pustif/in# theclassification of the intan#ible one wa/ o& anothe&.

n these #&a/ a&eas, %ana#e%ent %a/ elect to %ini%i7e e&iodic a%o&ti7ation cha&#esa#ainst ea&nin#s and ta9e thei& chances on the so%ewhat &ando% and 'e&/ subPecti'e

i%ai&%ent tests. Fo the e*tent ossible, %ana#e%ent would li9el/ classif/ ite%s andload cost in the indefinite>li'ed cate#o&/ to %ini%i7e the effect on ea&nin#s.

c. Eith i%ai&%ent cha&#es bein# a&t of inco%e f&o% continuin# oe&ations, co%anies%a/ see9 to lowe& the &obabilit/ that the/ will ha'e to &eco#ni7e #oodwill i%ai&%entcha&#es. Fhe subPecti'it/ inhe&ent in 'aluin# the &eo&tin# units to which the #oodwill isassi#nedHcash flow fo&ecasts and discount &ate selectionsHfacilitates decisions to load#oodwill onto &eo&tin# units that a&e less>li9el/ i%ai&%ent candidates, i.e., units withfai& 'alue si#nificantl/ abo'e boo9 'alue.

d. e'aluation of li%ited>life intan#ibles is $!,000 (= $,000 – $1,000).B%o&ti7ation of this &e'aluation fo& !00@ = $!,0001- * C1! = $100.quit/ %ethod inco%e = $1,000 – $100 = $C00

onsolidation wo&9in# ae& ent&ies

()

quit/ inco%e C00

?i'idendsHa&e%a&9 --0

n'est%ent in a&e%a&9 -0

()

2toc9holde&s equit/Ha&e%a&9 (1) 1,@00n'est%ent in a&e%a&9 1,@00

(1) $!6,C00 – $!0,800 – ($C,400 – $-,000)





P4%#$ )otiue!

()

Goodwill !0,800

dentifiable intan#ibles, li%ited life !,000

dentifiable intan#ibles, indefinite life(!) !,400

n'est%ent in a&e%a&9 !-,!00

(!) $6,400 – $4,000

(3)

B%o&ti7ation e*ense 100

dentifiable intan#ibles,li%ited life 100

P4%#. Cost Met(o! a! Elimiati* Etries T(ree 1ears a/ter A)&uisitio

alculation of n'est%ent balance at Danua&/ 1, !014

n'est%ent in 2unset oast, ?ece%be& 1, !011 $ ,-00,000

2unset oasts &eo&ted inco%e, !01!>!01 6-0,000

2unset oasts &eo&ted di'idends, !01!>!01 (-0L of&eo&ted inco%e) (!-,000)

e'aluation w&iteoffs, !01!>!01

Alant assets ($1,000,000)10 * ! !00,000

dentifiable intan#ibles ($,600,000!0) * ! (60,000 )

n'est%ent in 2unset oast, Danua&/ 1, !014 $ ,66-,000

5ote to inst&ucto& Mnde& "3 and inc&easin# in'ento&/, the acquisition date&e'alued in'ento&/ is assu%ed to still be on hand.


(B)

n'est%ent in 2unset oast ,66-,000

2toc9holde&s equit/H Auffin, 11 ,66-,000

()

?i'idend inco%e 100,000

?i'idends – 2unsetoast (.- * $!00,000) 100,000





P4%#. Cost Met(o! a! Elimiati* Etries T(ree 1ears a/ter A)&uisitio

()

2toc9holde&s equit/H2unsetoast, 11 1,@!-,000

n'est%ent in 2unsetoast 1,@!-,000

2unset oasts stoc9holde&s equit/, ?ece%be& 1, !011 = $1,400,000 (acquisition cost$,-00,000 less e*cess o'e& boo9 'alue $!,100,000).

2unset oasts stoc9holde&s equit/, Danua&/ 1, !014 = $1,400,000 + (1 > .-)(8-0,000 – !00,000)= $1,@!-,000.

()

dentifiable intan#ibles ,!40,000

n'ento&/ -00,000

Alant assets, net 800,000n'est%ent in 2unsetoast 1,C40,000

e'aluations at Danua&/ 1, !014 = o&i#inal &e'aluations less w&iteoffs fo& !01! and !01.

(3)

Alant assets, net 100,000




aa2e ham ch04 solutions

Documents