Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-58
Education.
FASB ASC AND IASB RESEARCH CASE
5. GAAP prohibits reversal of impairment losses for goodwill. IFRS also prohibits
reversal of impairment losses for goodwill
5. Requirements for goodwill impairment differ under IFRS. Under IFRS, goodwill
impairment testing uses a one-step approach: The recoverable amount of the
CGU (cash-generating unit) or group of CGUs (i.e., the higher of its fair value
88. When, as described in paragraph 81, goodwill relates to a cash-generating
unit but has not been allocated to that unit, the unit shall be tested for
90. A cash-generating unit to which goodwill has been allocated shall be
tested for impairment annually, and whenever there is an indication that the
104. An impairment loss shall be recognised for a cash-generating unit (the
smallest group of cash-generating units to which goodwill or a corporate
asset has been allocated) if, and only if, the recoverable amount of the unit
(group of units) is less than the carrying amount of the unit (group of units).
The impairment loss shall be allocated to reduce the carrying amount of the
These reductions in carrying amounts shall be treated as impairment losses
on individual assets and recognised in accordance with paragraph 60.
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Excel Case 1 Solution
a. Innovus employs initial value method to account for ChipTech.
Consolidated Entries
Innovus
ChipTech
Debit Credit
Consolidated
Revenues
(990,000)
(210,000)
(1,200,000)
Cost of good sold
500,000
90,000
590,000
Depreciation expense
100,000
5,000
105,000
Amortization expense
55,000
18,000
(E) 20,000
93,000
Dividend income
(40,000)
–0-
(I) 40,000
-0-
Net Income
(375,000)
(97,000)
(412,000)
Retained earnings 1/1
(1,555,000)
(450,000)
(S)450,000
(*C) 60,000
(1,615,000)
Net income
(375,000)
(97,000)
(412,000)
Dividends declared
250,000
40,000
(I) 40,000
250,000
Retained earnings 12/31
(1,680,000)
(507,000)
(1,777,000)
Current assets
960,000
355,000
1,315,000
Investment in Chiptech
670,000
(*C) 60,000
(S) 580,000
(A) 150,000
-0-
Equipment (net)
765,000
225,000
990,000
Trademark
235,000
100,000
(A) 36,000
(E) 4,000
367,000
Existing technology
0
45,000
(A) 64,000
(E) 16,000
93,000
Goodwill
450,000
-0-
(A) 50,000
500,000
Total assets
3,080,000
725,000
3,265,000
Liabilities
(780,000)
(88,000)
(868,000)
Common stock
(500,000)
(100,000)
(S)100,000
(500,000)
Additional paid-in capital
(120,000)
(30,000)
(S) 30,000
(120,000)
Retained earnings 12/31
(1,680,000)
(507,000)
(1,777,000)
Total liabilities and equity
(3,080,000)
(725,000)
850,000
850,000
(3,265,000)
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Excel Case 1 Solution (continued)
b. Innovus employs initial value method to account for ChipTech and goodwill is
impaired.
Innovus
ChipTech
Consolidation Entries
Debit Credit
Consolidated
Revenues
(990,000)
(210,000)
(1,200,000)
Cost of good sold
500,000
90,000
590,000
Depreciation expense
100,000
5,000
105,000
Amortization expense
55,000
18,000
(E) 20,000
93,000
Impairment loss
50,000
50,000
Dividend income
(40,000)
-0-
(I) 40,000
-0-
Net Income
(325,000)
(97,000)
(362,000)
Retained earnings 1/1
(1,555,000)
(450,000)
(S)450,000
(*C) 60,000
(1,615,000)
Net income
(325,000)
(97,000)
(362,000)
Dividends declared
250,000
40,000
(I) 40,000
250,000
Retained earnings 12/31
(1,630,000)
(507,000)
(1,727,000)
Current assets
960,000
355,000
1,315,000
Investment in Chiptech
620,000
(*C) 60,000
(S)580,000
(A)100,000
-0-
Equipment (net)
765,000
225,000
990,000
Trademark
235,000
100,000
(A) 36,000
(E) 4,000
367,000
Existing technology
-0-
45,000
(A )64,000
(E) 16,000
93,000
Goodwill
450,000
-0-
450,000
Total assets
3,030,000
725,000
3,215,000
Liabilities
(780,000)
(88,000)
(868,000)
Common stock
(500,000)
(100,000)
(S)100,000
(500,000)
Additional paid-in
capital
(120,000)
(30,000)
(S) 30,000
(120,000)
Retained earnings 12/31
(1,630,000)
(507,000)
(1,727,000)
Total liab. and equity
(3,030,000)
(725,000)
800,000
800,000
(3,215,000)
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-61
Education.
Excel Case 2 Solution
Part a: Investment in Wi-Free account balance 12/31/18
Wi–Free’s acquisition-date fair value $730,000
Change in Wi-Free’s retained earnings for 2017 80,000
Balance 12/31/18 $856,000
Part b: Consolidation Entries Consolidated
Hi-Speed Wi-Free Debit Credit Totals
Revenues
(1,100,000)
(325,000)
(1,425,000)
Cost of goods sold
625,000
122,000
747,000
Depreciation expense
140,000
12,000
152,000
Amortization expense
50,000
11,000
(E) 12,000
(E) 7,500
65,500
Equity in subsidiary earnings
(175,500)
-0-
(I)175,500
-0-
Net Income
(460,500)
(180,000)
(460,500)
Retained earnings 1/1
(1,552,500)
(450,000)
(S)450,000
(1,552,500)
Net income
(460,500)
(180,000)
(460,500)
Dividends declared
250,000
50,000
(D) 50,000
250,000
Retained earnings 12/31
(1,763,000)
(580,000)
(1,763,000)
Current assets
1,034,000
345,000
(P) 30,000
1,349,000
Investment in Wi-Free
856,000
(D) 50,000
(I) 175,500
(S)580,000
(A)150,500
0
Equipment (net)
713,000
305,000
1,018,000
Computer software
650,000
130,000
(E) 7,500
(A) 22,500
765,000
Internet domain name
0
100,000
(A)108,000
(E) 12,000
196,000
Goodwill
-0-
-0-
(A) 65,000
65,000
Total assets
3,253,000
880,000
3,393,000
Liabilities
(870,000)
(170,000)
(P) 30,000
(1,010,000)
Common stock
(500,000)
(110,000)
(S)110,000
(500,000)
Additional paid-in capital
(120,000)
(20,000)
(S) 20,000
(120,000)
Retained earnings 12/31
(1,763,000)
(580,000)
(1,763,000)
Total liab. and equity
(3,253,000)
(880,000)
1,028,000
1,028,000
(3,393,000)
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Education.
Chapter 3 – Computer Project
PECOS COMPANY AND SUARO COMPANY
Consolidated Information Worksheet
Pecos
Suaro
Revenues
(1,052,000)
(427,000)
Operating expenses
821,000
262,000
Amortization of intangibles
0
Goodwill impairment loss
0
Income of Suaro
0
Net income
(165,000)
Retained earnings—Pecos, 1/1
Retained earnings—Suaro, 1/1
0
(201,000)
Net income (above)
0
(165,000)
Dividends declared
200,000
35,000
Retained earnings, 12/31
(331,000)
Cash
195,000
95,000
Receivables
247,000
143,000
Inventory
415,000
197,000
Investment in Suaro
0
Land
341,000
85,000
Equipment (net)
240,100
100,000
Software
0
312,000
Other intangibles
145,000
0
Goodwill
0
0
Total assets
932,000
Liabilities
(1,537,100)
(251,000)
Common stock
(500,000)
(350,000)
Retained earnings (above)
(331,000)
Total liabilities and equity
(932,000)
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-63
Consolidated Information Worksheet (continued)
Fair Value Allocation Schedule
Acquisition-date fair value
1,450,000
Book value
476,000
Excess fair value over book value
974,000
Amortizations and Write-off
2017
2018
Land
(10,000)
0
0
Brand Name
60,000
0
0
Software
100,000
50,000
50,000
IPR&D
300,000
300,000
0
Goodwill
524,000
0
0
Total
974,000
350,000
50,000
Suaro’s Retained Earnings Changes
2017
2018
Income
75,000
165,000
Dividends
0
35,000
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-61
Chapter 3 – Computer Project Solution
PECOS COMPANY AND SUARO COMPANY
Consolidated Worksheet
For the Year Ended December 31, 2018
EQUITY METHOD
Consolidation Entries
Consolidated
Pecos
Suaro
Debit
Credit
Totals
Revenues
(1,052,000)
(427,000)
(1,479,000)
Operating expenses
821,000
262,000
1,083,000
Amortization of intangibles
0
0
(E)
50,000
50,000
Goodwill impairment loss
0
0
0
Income of Suaro
(115,000)
0
(I)
115,000
0
Net income
(346,000)
(165,000)
(346,000)
Retained earnings—Pecos, 1/1
(655,000)
0
(655,000)
Retained earnings—Suaro, 1/1
0
(201,000)
(S)
201,000
0
Net income (above)
(346,000)
(165,000)
(346,000)
Dividends declared
200,000
35,000
(D)
35,000
200,000
Retained earnings, 12/31
(801,000)
(331,000)
(801,000)
Cash
195,000
95,000
290,000
Receivables
247,000
143,000
390,000
Inventory
415,000
197,000
612,000
Investment in Suaro
1,255,000
0
(D)
35,000
(S)
551,000
0
(A)
624,000
(I)
115,000
Commented [BW1]: Page numbering is off in the
footnote below. This should be 3-64 and the rest of the
pages need to be renumbered
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-62
Consolidated Worksheet (continued)
Land
341,000
85,000
(A)
10,000
416,000
Equipment (net)
240,100
100,000
340,100
Software
0
312,000
(A)
50,000
(E)
50,000
312,000
Other intangibles
145,000
0
145,000
Brand name
0
0
(A)
60,000
60,000
Goodwill
0
0
(A)
524,000
524,000
Total assets
2,838,100
932,000
3,089,100
Liabilities
(1,537,100)
(251,000)
(1,788,100)
Common stock
(500,000)
(350,000)
(S)
350,000
(500,000)
Retained earnings (above)
(801,000)
(331,000)
(801,000)
Total liabilities and equity
(2,838,100)
(932,000)
1,385,000
1,385,000
(3,089,100)
Shaded items were provided on the Consolidated Information Worksheet
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-63
Chapter 3 – Computer Project Solution
PECOS COMPANY AND SUARO COMPANY
Consolidated Worksheet
For the Year Ended December 31, 2018
PARTIAL EQUITY METHOD
Consolidation Entries
Consolidated
Pecos
Suaro
Debit
Credit
Totals
Revenues
(1,052,000)
(427,000)
(1,479,000)
Operating expenses
821,000
262,000
1,083,000
Amortization of intangibles
0
0
(E)
50,000
50,000
Goodwill impairment loss
0
0
0
Income of Suaro
(165,000)
0
(I)
165,000
0
Net income
(396,000)
(165,000)
(346,000)
Retained earnings—Pecos, 1/1
(1,005,000)
0
(*C)
350,000
(655,000)
Retained earnings—Suaro, 1/1
0
(201,000)
(S)
201,000
0
Net income (above)
(396,000)
(165,000)
(346,000)
Dividends declared
200,000
35,000
(D)
35,000
200,000
Retained earnings, 12/31
(1,201,000)
(331,000)
(801,000)
Cash
195,000
95,000
290,000
Receivables
247,000
143,000
390,000
Inventory
415,000
197,000
612,000
Investment in Suaro
1,655,000
0
(D)
35,000
(S)
551,000
0
(A)
624,000
(I)
165,000
(*C)
350,000
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-64
Consolidated Worksheet (continued)
Land
341,000
85,000
(A)
10,000
416,000
Equipment (net)
240,100
100,000
340,100
Software
0
312,000
(A)
50,000
(E)
50,000
312,000
Other intangibles
145,000
0
145,000
Brand name
0
0
(A)
60,000
60,000
Goodwill
0
0
(A)
524,000
524,000
Total assets
3,238,100
932,000
3,089,100
Liabilities
(1,537,100)
(251,000)
(1,788,100)
Common stock
(500,000)
(350,000)
(S)
350,000
(500,000)
Retained earnings (above)
(1,201,000)
(331,000)
(801,000)
Total liabilities and equity
(3,238,100)
(932,000)
1,785,000
1,785,000
(3,089,100)
Shaded items were provided on the Consolidated Information Worksheet
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Chapter 3 – Computer Project Solution
PECOS COMPANY AND SUARO COMPANY
Consolidated Worksheet
For the Year Ended December 31, 2018
INITIAL VALUE METHOD
Consolidation Entries
Consolidated
Pecos
Suaro
Debit
Credit
Totals
Revenues
(1,052,000)
(427,000)
(1,479,000)
Operating expenses
821,000
262,000
1,083,000
Amortization of intangibles
0
0
(E)
50,000
50,000
Goodwill impairment loss
0
0
0
Income of Suaro
(35,000)
0
(I)
35,000
0
Net income
(266,000)
(165,000)
(346,000)
Retained earnings—Pecos, 1/1
(930,000)
0
(*C)
275,000
(655,000)
Retained earnings—Suaro, 1/1
0
(201,000)
(S)
201,000
0
Net income (above)
(266,000)
(165,000)
(346,000)
Dividends declared
200,000
35,000
(I)
35,000
200,000
Retained earnings, 12/31
(996,000)
(331,000)
(801,000)
Cash
195,000
95,000
290,000
Receivables
247,000
143,000
390,000
Inventory
415,000
197,000
612,000
Investment in Suaro
1,450,000
0
(S)
551,000
0
(A)
624,000
(*C)
275,000
Consolidated Worksheet (continued)
Land
341,000
85,000
(A)
10,000
416,000
Equipment (net)
240,100
100,000
340,100
Software
0
312,000
(A)
50,000
(E)
50,000
312,000
Other intangibles
145,000
0
145,000
Brand name
0
0
(A)
60,000
60,000
Goodwill
0
0
(A)
524,000
524,000
Total assets
3,033,100
932,000
3,089,100
Liabilities
(1,537,100)
(251,000)
(1,788,100)
Common stock
(500,000)
(350,000)
(S)
350,000
(500,000)
Retained earnings (above)
(996,000)
(331,000)
(801,000)
Total liabilities and equity
(3,033,100)
(932,000)
1,545,000
1,545,000
(3,089,100)
Shaded items were provided on the Consolidated Information Worksheet
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Chapter 3 – Computer Project
4. PECOS COMPANY AND SUARO COMPANY
Goodwill Impairment Loss Effects
Without
With
Impairment
Impairment
Common shares outstanding
500,000
500,000
Consolidated net income/(loss)
346,000
(178,000)
Consolidated assets, 1/1/18
2,943,100
2,943,100
Consolidated assets, 12/31/18
3,089,100
2,565,100
Consolidated equity, 1/1/18
1,155,000
1,155,000
Consolidated equity, 12/31/18
1,301,000
777,000
Consolidated liabilities
1,788,100
1,788,100
Earnings-per-share
0.69
-0.36
Return on assets
11.47%
-6.46%
Return on equity
28.18%
-18.43%
Debt-to-equity
1.37
2.30
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
3-68
Chapter 3 – Computer Project Solution
PECOS COMPANY AND SUARO COMPANY
Consolidated Worksheet
For the Year Ended December 31, 2018
EQUITY METHOD – GOODWILL IMPAIRMENT LOSS
Consolidation Entries
Consolidated
Pecos
Suaro
Debit
Credit
Totals
Revenues
(1,052,000)
(427,000)
(1,479,000)
Operating expenses
821,000
262,000
1,083,000
Amortization of intangibles
0
0
(E)
50,000
50,000
Goodwill impairment loss
524,000
0
524,000
Income of Suaro
(115,000)
0
(I)
115,000
0
Net income
178,000
(165,000)
178,000
Retained earnings—Pecos, 1/1
(655,000)
0
(655,000)
Retained earnings—Suaro, 1/1
0
(201,000)
(S)
201,000
0
Net income (above)
178,000
(165,000)
178,000
Dividends declared
200,000
35,000
(D)
35,000
200,000
Retained earnings, 12/31
(277,000)
(331,000)
(277,000)
Cash
195,000
95,000
290,000
Receivables
247,000
143,000
390,000
Inventory
415,000
197,000
612,000
Investment in Suaro
731,000
0
(D)
35,000
(S)
551,000
0
(A)
100,000
(I)
115,000
Chapter 03 – Consolidations—Subsequent to the Date of Acquisition
Consolidated Worksheet (continued)
Land
341,000
85,000
(A)
10,000
416,000
Equipment (net)
240,100
100,000
340,100
Software
0
312,000
(A)
50,000
(E)
50,000
312,000
Other intangibles
145,000
0
145,000
Brand name
0
0
(A)
60,000
60,000
Goodwill
0
0
0
Total assets
2,314,100
932,000
2,565,100
Liabilities
(1,537,100)
(251,000)
(1,788,100)
Common stock
(500,000)
(350,000)
(S)
350,000
(500,000)
Retained earnings (above)
(277,000)
(331,000)
(277,000)
Total liabilities and equity
(2,314,100)
(932,000)
861,000
861,000
(2,565,100)
Shaded items were provided on the Consolidated Information Worksheet
5. Part a. of the report should recognize that there is no effect on final consolidated balances from the alternative internal accounting
methods, despite differences on the parent’s trial balances. In part b., students should point to the relation between the parent’s retained
earnings and consolidated retained earnings—observing that the equity method produces identical results and the initial value and partial