. Evaluate each of the items a through e and prepare the journal entry that should be made to record the purchase on Stewart’s books. Should Stewart Corp. recognize goodwill impairment loss in 2022? Discuss the implications of goodwill impairment on earnings quality.
On January 1, 2021, Stewart Corp. acquires a small local company Miller Inc. for $500,000 cash. The following information is disclosed regarding the assets and liabilities of Miller Inc.:
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a) Miller owned land and a small manufacturing plant with a book value of $100,000. An appraisal had been made during the year, and the plant was appraised at $175,000. Property tax assessment notices showed that the building’s worth was five times the worth of the land.
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b) Miller’s equipment had a book value of $30,000. It is estimated that it will take four times the amount of book value to replace the old equipment with new equipment. The old equipment is 50%
depreciated. -
c) Miller had a franchise that was then transferred to Stewart as part of the purchase. Miller carried the asset on its books at $50,000, the unamortized balance of the original cost of $100,000. The franchise is for an unlimited time. Similar franchise are now being sold by the company for $100,000 per geographical area.
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d) Millerheldtwopatentsonitsproducts.Bothhadbeenfullyamortizedandwerenotcarried as assets on Stewart’s books. Stewart believes they could have been sold separately for $75,000 each.
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e) Miller has liabilities with fair value of $180,000.
After the acquisition, Miller is considered a cash generating unit within Stewart Corp. As such cash generating unit includes
Required:
1. Evaluate each of the items a through e and prepare the
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Should Stewart Corp. recognize goodwill impairment loss in 2022?
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Discuss the implications of goodwill impairment on earnings quality.
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