Premier Salons located in FL, is a publicly traded firm ( (SEC) filer) that curr
ID: 340871 • Letter: P
Question
Premier Salons located in FL, is a publicly traded firm ( (SEC) filer) that currently manufactures barbershop and salon equipment, and hair products it sells throughout United States. Premier Salon's fiscal year-end is December 31st. The President of the Company is in the process of preparing the December 31, 2017, classified statement of financial position and income statement. Information regarding the impairment of goodwill that specifically concerns the President is related to the acquisition of Julia, Inc., (the leading manufacturer of hair color products in the U.S.) that occurred in 2016 and resulted Premier Salons recording $125million in goodwill related to this acquisition in 2016. After acquisition, Julia Inc. continues to operate as a separate company and is considered a reporting unit. At the end of 2017, events and circumstances indicated that it is "more likely than not" that the fair value of Julia is less than book value. The President determined the following information pertaining to Julia. As of 12/31/17 the book value of Julia's net assets is $560 million, including the $125 million in goodwill. Julia estimated fair value as of 12/31/17 is $445million, and the fair value of all its identifiable tangible and intangible assets, excluding goodwill, is estimated to be $425million.These estimates were based on prices of comparable businesses.
1. Determine the amount of the goodwill impairment loss
2. If applicable, prepare the journal entry to record the impairment loss and explain how this loss is reported on the income statement (ignore income tax effects)
3. If an impairment loss is recorded, indicate the amount of goodwill to be reported on the statement of financial position as of 12/31/17
Explanation / Answer
1. Fair Value of the GoodWill = fair value of Company - fair value of all its identifiable tangible and intangible assets, excluding goodwill
= $ 445 Million - $ 425 Millilon
= $ 25 Million
Impairment Loss in Goodwill = Book Value - Fair Value
= $ 125 Million - $ 25 Million
= $ 100 Million
2. Impairmrnt Loss A/c Dr. $ 100 Million
To Goodwill A/c Cr. $ 100 million
(Being Impairment Loss Booked to Dr side of the Income Statment)
3. goodwill to be reported on the statement of financial position as of 12/31/17
= Goodwill Book Value At start of the Year - Imparied Loss
= $ 125 Million - $ 25 Million
=$ 25 Million