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Goodwill and Other Intangible Assets

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When should a consolidated entity recognize a goodwill impairment loss?

a. If both the market value of a reporting unit and its associated implied goodwill fall below their respective carrying values.
b. Whenever the market value of the entity declines significantly.
c. If the market value of a reporting unit falls below its original acquisition price.
d. Annually on a systematic and rational basis.
e. None of the above.
f. Cannot determine answer with facts presented.

According to the SFAS 142, "Goodwill and Other Intangible Assets," if no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's cost is allocated to expense over which of the following?

a. 20 years.
b. 20 years with an annual impairment review.
c. infinitely.
d. indefinitely (no amortization) with an annual impairment review until its life becomes finite.
e. None of the above.
f. Cannot determine answer with facts presented.

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Solution Preview

Answer 1:
(a) is the correct answer.
Test 1: Each year ask: does the fair value of a reporting unit exceed its carrying value (including the carrying value of goodwill)?
If "yes," no impairment is to ...

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According to SFAS 142, "Goodwill and Other Intangible Assets," if no legal, regulatory, contractual, competitive, economic, or other factors limit the life of an intangible asset, the asset's cost is allocated to expense over which of the following?
a.20 years.
b.20 years with an annual impairment review.
c.infinitely
d.indefinitely (no amortization) with an annual impairment review until its life becomes finite.

2. Ames, Inc. had a book value of 400,000 on January 1, 2002, and 550,000 on January 1, 2004. On both dates, the book value of the company's assets and liabilities were the same as fair market value. Hitchcock Corporation acquired 30 percent of Ames on January 1, 2002, for 160,000 in cash. Hitchcock purchased an additional 40 percent of Ames on January 1, 2004, for 240,000. On a consolidated balance sheet as of December 31, 2004, what amount of goodwill is reported?
a. 60,000
b.54,000
c.53,000
d.52,000

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