Goodwill Impairment Test OnJ anuary 1, 2003, Porsche Company acquired the net assets of Saab Company for $450,000 cash. The fair value of Saab’s identifiable net assets was $375,000 on this date. Porsche Company decided to measure goodwill impairment using the present value of future cash flows to estimate the fair value of the reporting unit (Saab). The information for these subsequent years is as follows: LO4 Carrying Value Fair Value of Present Value of Future of Saab’s Identifiable Saab’s Identifiable Year Cash Flows Net Assets* Net Assets 2004 $400,000 $330,000 $340,000 2005 400,000 320,000 345,000 2006 350,000 300,000 325,000 * Identifiable net assets do not include goodwill.
Required:
A. For each year determine the amount of goodwill impairment, if any.
B. Prepare the journal entries needed each year to record the goodwill impairment (if any)
on Porsche’s books from 2004 to 2006.
C. How should goodwill (and its impairment) be presented on the balance sheet and the income statement in each year?
D. If goodwill is impaired, what additional information needs to be disclosed?