Purchase price above which goodwill would result $675,000 b. Any existing goodwill would be eliminated before recording a gain: $675,000 Fair Value of Identifiable Net Assets $50,000 Gain = $625,000. – c. Anything below $675,000 is technicially considered a bargain. d. Goodwill would be $75,000 at a purchase price of $750,000 or ($675,000 + $75,000). 1. In the first step of the goodwill impairment test, the fair value of the reporting unit is compared to its carrying amount. If the fair value is less than the carrying amount, then the carrying value of the goodwill is compared to its implied fair value. A loss is recognized when the carrying value of goodwill is higher than its fair value. 2. Issue SFAS No. 141 SFAS No. 141R Acquisitions Capitalize the costs. Expense as incurred. costs In-process Included as part of purchase price, but then Included as part of purchase price, R&D immediately expensed. treated as an asset. Contingent Record when determinable and reflect Record at fair value on the consideration subsequent changes in the purchase price. acquisition date with subsequent changes recorded on the income statement. Business A business is defined as a self-sustaining A business or a group of assets no definition integrated set of activities and assets longer must be self-sustaining. The conducted and managed for the purpose of business or group of assets must be providing a return to investors. The definition capable of generating a revenue would exclude early-stage development stream. This definition would include entities. early-stage development entities. Short Answer Questions from the Textbook Solutions
Purchase price above which goodwill would result $675,000 b. Any existing goodwill would be eliminated before recording a gain: $675,000 Fair Value of Identifiable Net Assets – $50,000 Gain = $625,000. c. Anything below $675,000 is technicially considered a bargain. d. Goodwill would be $75,000 at a purchase price of $750,000 or ($675,000 + $75,000). 1. In the first step of the goodwill impairment test, the fair value of the reporting unit is compared to its carrying amount. If the fair value is less than the carrying amount, then the carrying value of the goodwill is compared to its implied fair value. A loss is recognized when the carrying value of goodwill is higher than its fair value. 2. Issue SFAS No. 141 SFAS No. 141R Acquisitions costs Capitalize the costs. Expense as incurred. In-process R&D Included as part of purchase price, but then immediately expensed. Included as part of purchase price, treated as an asset. Contingent consideration Record when determinable and reflect subsequent changes in the purchase price. Record at fair value on the acquisition date with subsequent changes recorded on the income statement. Business definition A business is defined as a self-sustaining integrated set of activities and assets conducted and managed for the purpose of providing a return to investors. The definition would exclude early-stage development entities. A business or a group of assets no longer must be self-sustaining. The business or group of assets must be capable of generating a revenue stream. This definition would include early-stage development entities. Short Answer Questions from the Textbook Solutions
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