ACCT 405 ADVANCED ACCOUNTING WEEK 3 HOMEWORK SOLUTIONS / 2020
7. Goodwill recognized in a business combination must be allocated among a firm’s identified reporting units. If the fair value of a particular reporting unit with recognized goodwill falls below its carrying amount, which of the following is true?
a. No goodwill impairment loss is recognized unless the implied value for goodwill exceeds its carrying amount.
b. A goodwill impairment loss is recognized if the carrying amount for goodwill exceeds its implied value.
c. A goodwill impairment loss is recognized for the excess of a reporting unit’s carrying amount over its fair value, not to exceed the carrying amount of goodwill.
d. The reporting unit reduces the values assigned to its long-term assets (including any unrecognized intangibles) to reflect its fair value.
Problems 10, 11, and 12 relate to the following:
On January 1, 2016, Phoenix Co. acquired 100 percent of the outstanding voting shares of Sedona Inc., for $600,000 cash. At January 1, 2016, Sedona’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Sedona’s financial records by $80,000. Any remaining excess fair over book value was attributed to a customer list developed by Sedona (four-year remaining life), but not recorded on its books. Phoenix applies the equity method to account for its investment in Sedona. Each year since the acquisition, Sedona has declared a $20,000 dividend. Sedona recorded net income of $70,000 in 2016 and $80,000 in 2017.
Selected account balances from the two companies’ individual records were as follows:
PhoenixSedona
2018 Revenues$498,000$285,000
2018 Expenses350,000195,000
2018 Income from Sedona55,000
Retained earnings 12/31/18250,000175,000
10. What is consolidated net income for Phoenix and Sedona for 2018?
a. $148,000
b. $203,000
c. $228,000
d. $238,000
11. What is Phoenix’s consolidated retained earnings balance at December 31, 2018?
a. $250,000
b. $290,000
c. $330,000
d. $360,000
12. On its December 31, 2018, consolidated balance sheet, what amount should Phoenix report for Sedona’s customer list?
a. $10,000
b. $20,000
c. $25,000
d. $50,000
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