Wk2 Assignment Project #1 - Individual: Objective, not Subjective Exercises Instructions: This project requires you to apply the concepts and methods leamed so far in the course. This is an individual project. You are permitted to discuss this project within your respective group of fellow students. Please note that the project does not have a word count requirement as computations and a brief dialogue; if any, are only necessary. Moreover, show your work and solutions unto a word document that may be attached to your "Assignment Manager link." Each individual will submit their paper to the Professor via the Assignment Manager link. PROJECT: Goodwill Impairment, Tangible Fixed Assets, and Finite-Life Intangible Assets' Impairments. [Learning Objective 2, 3, 4] Green River Company acquired 100% of the voting stock of the AutoStyle Group on January 1 of the current year for a total acquisition cost of $250,000. The trial balance of AutoStyle on the date of acquisition follows. Description Investment securities - held to maturity Plant and equipment - net Intangible assets - net Long-term debt Contributed capital Retained earnings Totals Debit Credit $ 30,000 195,000 70,000 $ 115,000 60,000 120,000 $295,000 $295,000 The AutoStyle Group acquired the intangible assets 3 years ago. It amortizes the assets using the straight-line method with no estimated residual value. The appraisal of the subsidiary's net assets on the date of acquisition indicated that the following adjustments were required: Description Book Value Fair Value Adjustment Plant and equipment - net $195,000 $210,000 $15,000 Customer list 0 Long-term debt (115,000) 50,000 (120,000) 50,000 (5,000) Total net assets $ 80,000 $140,000 $60,000 11 Page tangible On December 31 (1 year after the acquisition Green River's management conducted its annual impairment test for goodwill Management has also assessed recent eventa and determined that it should review its plant and equipment and finite-life intangible assets for possible impairment. Management determines AutoStyle to be the reporting unit, which is also the cash-generating unit. Management estimated that the fair value of the unit (AutoStyle) with goodwill 1 year after the acquisition was $300,000, its value in use was $310.000 and the costs to sell were $20,000. The net assets of the unit, excluding goodwill were appraised at $294,000. Assume that annual depreciation is $5.000 annual amortization for the customer list is $1,000, and the annual amortization for the other intangible assets is $3,500. Green River uses separate accounts for accumulated depreciation and accumulated amortization. Treat the customer list as a finite-life intangible asset. Management is unable to determine fair values for the reporting unit's assets, but it estimates the following future cash flows for each of the unit's assets with the exception of goodwill. Assume that Green River's cost of capital is 5%. Don alance of Future Period Plant and Finite-Life Intangible Customer Equipment Assets List Year 1 $ 51,500 $11,000 $16,800 Year 2 40,000 10,000 14,200 Year 3 20,500 8.900 10,600 Year 4 14,000 2700 9,500 Year 5 0 6,500 8,800 5,000 Year 6 0 6,000 5,100 ,000 Year 7 0 3,900 3,000 ,000 Total $126,000 $54,000 $68,000 ,000 e assets the DELIVERABLES a. Compute the amount of goodwill to be recorded on the date of acquisition. b. Conduct the impairment test for goodwill at the end of the year, 1 year after the acquisition. Assume no changes in the reporting unit's assets and liabilities except for depreciation and amortization. c. Conduct the impairment tests indicated for assets other than goodwill at the end of the year, 1 year after the acquisition. d. Prepare the journal entries required to record any impairment losses computed in parts (b) and (c). This assignment is due by Sunday at 11:59 pm. 21 Page