On December 31, Year 2, Palm Inc. purchased 80% of the outstanding ordinary shares of Storm Company
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¢ At December 31, Year 5, an impairment test of Storm's goodwill revealed the following: Fair value less disposal costs based on recent offer from prospective purchaser $46,000 Value in use based on undiscounted future net cash flows 65,000 Value in use based on discounted future net cash flows using a discount rate of
6%, which is Storm's incremental borrowing rate ...... 50,000
3%, which is the risk-free rate on government bonds ..... 55,000
An impairment test indicated that the trademarks had a recoverable amount of $13,750. The impairment loss on these assets occurred entirely in Year 6.
¢ On December 26, Year 6, Palm declared dividends of $36,000, while Storm declared dividends of $20,000.
¢ Amortization expense is reported in selling expenses, while impairment losses are reported in other expenses.
Financial statements for Palm and Storm for the year ended December 31, Year 6, were as follows:
Required:
(a) Prepare consolidated financial statements.
(b) If none of the acquisition differential had been allocated to trademarks at the date of acquisition, how would this affect
(i) The return on total shareholders' equity for Year 6?
(ii) The debt-to-equity ratio at the end of Year 6?
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Intangible Assets
An intangible asset is a resource controlled by an entity without physical substance. Unlike other assets, an intangible asset has no physical existence and you cannot touch it.Types of Intangible Assets and ExamplesSome examples are patented... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Related Book For
Modern Advanced Accounting In Canada
ISBN: 9781259066481
7th Edition
Authors: Hilton Murray, Herauf Darrell
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