Destin Company recently acquired several businesses and recognized goodwill in each acquisition. Destin has allocated the result
ing 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.
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.
2 answers:
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.
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