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Destin Company recently acquired several businesses and recognized goodwill in each acquisition. Destin has allocated the resulting goodwill to its three reporting units: Sand Dollar, Salty Dog, and Baytowne. Destin opts to skip the qualitative assessment and therefore performs a quantitative goodwill impairment review annually.
In its current year assessment of goodwill, Destin provides the following individual asset and liability values for each reporting unit:
The fair values for each reporting unit (including goodwill) are $510,000 for Sand Dollar, $580,000 for Salty Dog, and $560,000 for Baytowne. To date, Destin has reported no goodwill impairments.
Determine which of Destin's reporting units require both steps to test for goodwill impairment.

Respuesta :

MrRoyal

Answer:

Sandollar - Yes

Salty Dog - Yes

Baytowne - No

Explanation:

(See attachment)

Given

Total Fair Value = $510,000 --------- Sandollar

Total Fair Value = $580,000 --------- Salty Dog

Total Fair Value = $560,000 -------- Baytowne

Calculating Carrying Value of Sandollar

Carrying Value = $181,000 + $197,000 + $138,000 + $186,600 - $44,500

Carrying Value = $658,100

Calculating Carrying Value of Salty Dog

Carrying Value = $246,00 + $234,000 + $91,500 + $206,950

Carrying Value = $778,450

Calculating Carrying Value of Baytowne

Carrying Value = $186,000 + $0 + $73,500 + $134,500

Carrying Value = $394,000

We then compare the total Fair Value with total carrying Value of each unit.

If the total Fair Value is lesser than the total carrying Value then there is potential Goodwill impairment

Else, there's no potential Goodwill impairment.

Sandollar

Is $510,000 > $658,100 No

Then Yes, there's potential goodwill impairment

Salty Dog

Is $580,000 > $778,450 No

Then Yes, there's potential goodwill impairment

Baytowne

Is $560,000 > $394,000 Yes

Then, No there's no potential goodwill impairment.

Ver imagen MrRoyal

Answer: The carrying value of sand Dollar and salty Dog are more than their fair value and therefore require second test for goodwill impairment, while the carrying value of Baytowne is less than its fair value and therefore requires no second test for goodwill impairment

Explanation:

The question is not complete the full part of the question was found online on www.chegg .com. The missing part of the question is this

Carrying value. Fair value

$ $

Sand Dollar

Tangible Asset. 180,000. 190,000

Trade mark. 170,000. 150,000

Customer list. 90,000. 100,000

Goodwill. 120,000. ?

Liabilities. (30,000) (30,000)

Salty Dog

Tangible Asset. 200,000. 200,000

Unpatented Technology. 170,000. 125,000

Licenses. 90,000. 100,000

Goodwill. 150,000. ?

Baytowne

Tangible Asset. 140,000. 150,000

Unpatented Technology. 0. 100,000

Copyright. 50,000. 80,000

Goodwill. 90,000. ?

To solve the question, we should calculate the carrying value of each reporting unit and compare with fair value

Sand Dollar

Tangible Asset 180,000

Trade mark. 170,000

Customer list. 90,000

Goodwill. 120,000

Liabilities. (30,000)

-----------------

Net Asset. 530,000

------------------

Salty Dog

Tangible Asset 200,000

Unpatented Technology 170,000

Licenses. 90,000

Goodwill. 150,000

---------------

Net Asset. 610,000

-----------------

Baytowne

Tangible Asset. 140,000

Unpatented Technology 0

Copyright. 50,000

Goodwill. 90,000

--------------

Net Asset. 280,000

-------------

We now compare the carrying value with fair value of each reporting unit

Sand Dollar. Carrying value. Fair value

Net Asset. $530,000. $510,000

Salty Dog. Carrying value. Fair value

Net Asset. $610,000. $580,000

Baytowne. Carrying value. Fair value

Net Asset. $280,000. $560,000

From the comparison of the carrying value with the fair value, the carrying value for sand Dollar and salty Dog are greater than fair value. Therefore, they require the second test for goodwill impairment while the carrying value of Baytowne is less than the fair value it is not required a second test of goodwill impairment.

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