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. 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: $153 million 43 million 100 million Undiscounted sun 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) Compl $ 83 million 63 million $ 20 million 13 million $ 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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Topic Video
Question

ss

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
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)
$83 million
63 million
$ 20 million
13 million
$ 483 million
420 million
500 millions
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.
Complete this question by entering your ansviers in the tabs below.
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 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) $83 million 63 million $ 20 million 13 million $ 483 million 420 million 500 millions 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. Complete this question by entering your ansviers in the tabs below.
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.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Required 4
Determine the amount of any impairment loss to be recorded, if any, for the three assets.
Note: Enter your answers in millions rounded to 1 decimal place. For example, $5,500,000 should be entered as $5.5.
Plant and equipment
Patent
Goodwill
$
Impairment Loss
million
0.0 million
million
Transcribed Image Text: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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the amount of any impairment loss to be recorded, if any, for the three assets. Note: Enter your answers in millions rounded to 1 decimal place. For example, $5,500,000 should be entered as $5.5. Plant and equipment Patent Goodwill $ Impairment Loss million 0.0 million million
Expert Solution
steps

Step by step

Solved in 5 steps with 2 images

Blurred answer
Knowledge Booster
Depreciation Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education