Question & Answer: On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $450,000 cash. The fair value of Saab’s iden…..

On January 1, 2013, Porsche Company acquired the net assets of Saab Company for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting unit (Saab). The information for these subsequent years is as follows:

Carrying Value of            Fair Value

Present value                  Saab’s Identifiable    Saab’s Identifiable

Year                    of Future Cash Flows                Net Assets*                Net Assets

2014 $400,000                              $330,000                     $340,000

2015 $400,000                              $320,000                       345,000

2016 $350,000                              $300,000                       325,000

*Identifiable net assets do not include goodwill.

Required:

Part A: For each year determine the amount of goodwill impairment, if any.

Part B: Prepare the journal entries needed each year to record the goodwill impairment (if any) on Porsche’s books from 2014 to 2016:

Part C: How should goodwill (and its impairment) be presented on the balance sheet and the income statement in each year?

Part D: If goodwill is impaired, what additional information needs to be disclosed?