At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $630 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) Patent Goodwill $ 153 million 43 million 100 million. The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The potent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sun of future cash flows Fair value Patent: $ 83 million 63 million $ 20 million 13 million Undiscounted sum of future cash flows Fair value Goodwill: Fair value of Ellison Technology Corporation Book value of Ellison's net assets (excluding goodwill) Book value of Ellison's net assets (including goodwill) $ 483 million 420 million 500 millione "After first recording any impairment losses on plant and equipment and the patent. Required: 1. Compute the book value of the plant and equipment and patent at the end of 2024. 2. When should the plant and equipment and the patent be tested for impairment? 3. When should goodwill be tested for impairment? 4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.
At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $630 million. In addition to cash, receivables, and inventory, the following assets and their fair values were also acquired: Plant and equipment (depreciable assets) Patent Goodwill $ 153 million 43 million 100 million. The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The potent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method. At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following amounts have been determined: Plant and equipment: Undiscounted sun of future cash flows Fair value Patent: $ 83 million 63 million $ 20 million 13 million Undiscounted sum of future cash flows Fair value Goodwill: Fair value of Ellison Technology Corporation Book value of Ellison's net assets (excluding goodwill) Book value of Ellison's net assets (including goodwill) $ 483 million 420 million 500 millione "After first recording any impairment losses on plant and equipment and the patent. Required: 1. Compute the book value of the plant and equipment and patent at the end of 2024. 2. When should the plant and equipment and the patent be tested for impairment? 3. When should goodwill be tested for impairment? 4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:At the beginning of 2022, Metatec Incorporated acquired Ellison Technology Corporation for $630 million. In addition to cash,
receivables, and inventory, the following assets and their fair values were also acquired:
Plant and equipment (depreciable assets)
Patent
Goodwill
The plant and equipment are depreciated over a 10-year useful life on a straight-line basis. There is no estimated residual value. The
patent is estimated to have a five-year useful life, no residual value, and is amortized using the straight-line method.
$ 153 million
43 million
100 million
At the end of 2024, a change in business climate indicated to management that the assets of Ellison might be impaired. The following
amounts have been determined:
Plant and equipment:
Undiscounted sun of future cash flows
Fair value
Patent:
Undiscounted sum of future cash flows
Fair value
$ 83 million
63 million
$ 20 million
13 million
Goodwill:
Fair value of Ellison Technology Corporation
Book value of Ellison's net assets (excluding goodwill)
Book value of Ellison's net assets (including goodwill)
After first recording any impairment losses on plant and equipment and the patent.
Required:
1. Compute the book value of the plant and equipment and patent at the end of 2024.
2. When should the plant and equipment and the patent be tested for impairment?
$ 483 million
420 million
500 millione
3. When should goodwill be tested for impairment?
4. Determine the amount of any impairment loss to be recorded, if any, for the three assets.
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