5

On January 1, Prine, Inc., acquired 100 percent of Lydia Company's common stock for a fair value of $121,526,000 in cash and stock. Lydia's assets and liabilities equaled their fair values except for its equipment, which was undervalued by $580,000 and had a 10-year remaining life. Prine specializes in media distribution and viewed its acquisition of Lydia as a strategic move into content ownership and creation. Prine expected both cost and revenue synergies from controlling Lydia's artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Prine allocated Lydia's assets and liabilities (including $47,112,000 of goodwill) to a newly formed operating segment appropriately designated as a reporting unit. The fair values of the reporting unit's identifiable assets and liabilities through the first year of operations were as follows. Fair Values Account 1/1 12/31 Cash $ 279,000 $ 308,000 Receivables (net) 596,000 907,500 Movie library (25-year remaining life) 44,450,000 60,600,000 Broadcast licenses (indefinite remaining life) 15,360,000 20,530,000 Equipment (10-year remaining life) 20,840,000 19,870,000 Current liabilities (581,000) (722,500) Long-term debt (6,530,000) (6,495,000) However, Lydia's assets have taken longer than anticipated to produce the expected synergies with Prine's operations. Accordingly. Prine reviewed events and circumstances and concluded that Lydia's fair value was likely less than its carrying amount. At year-end, Prine reduced its assessment of the Lydia reporting unit's fair value to $112,418,000. At December 31, Prine and Lydia submitted the following balances for consolidation. There were no intra-entity payables on that date. Revenues Operating expenses Equity in Lydia earnings Dividends declared Retained earnings, 1/1 Cash Receivables (net) Investment in Lydia Broadcast licenses Movie library Equipment (net) Current liabilities Long-term debt Common stock Prine, Inc. Lydia Co. $ (19,300,000) $(13,800,000) 16,700,000 12,500,000 (1,242,000) 300,000 60,000 (58,200,000) (6,334,000) 594,000 308,000 360,000 907,500 122, 708,000 362,500 14,990,000 480,000 48,000,000 137,700,000 19,100,000 (762,500) (201,500) (24,700,000) (8,030,000) (175,000,000) (67,500,000) a. What is the relevant initial test to determine whether goodwill could be impaired? b. At what amount should Prine record an impairment loss for its Lydia reporting unit for the year? c. What is consolidated net income for the year? d. What is the December 31 consolidated balance for goodwill? e. What is the December 31 consolidated balance for broadcast licenses? f. Prepare a consolidated worksheet for Prine and Lydia (Prine's trial balance should first be adjusted for any appropriate impairment loss). a. What is the relevant initial test to determine whether goodwill could be impaired? b. At what amount should Prine record an impairment loss for its Lydia reporting unit for the year? c. What is consolidated net income for the year? d. What is the December 31 consolidated balance for goodwill? e. What is the December 31 consolidated balance for broadcast licenses? Show less A Goodwill is impaired if the Impairment loss fair value is less than carrying value 20,584,000 b. (16,742,000) Consolidated net Consolidated goodwill Consolidated broadcast licenses | 26,528,000 Prepare a consolidated worksheet for Prine and Lydia (Prine's trial balance should first be adjusted for any appropriate impairment loss). (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one Negative amounts should be indicated by a minus sign. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less PRINE AND LYDIA Consolidated Worksheet December 31 Adjusting Entries Consolidated Prine, Inc. Lydia Co. Debit Credit $ (19,300,000) $ (13,800,000) 16,700,000 12,500,000 50,000 (1.242,000) 1,242,000 Accounts Revenues Consolidated Totals $ (33,100,000) (29,200,000) Expenses Equity in Lydia earnings Impairment loss Net income/loss $ 16,742,000 $ (62,300,000) (6,334,000) Retained earnings 1/1 Dividends declared Net income $ (58,200,000) 300,000 16,742,000 $ (6,334,000) 60.000 60,000 $ (58,200,000) 300,000 (62,300,000) Retained earnings 12/31 (120,200,000) $ $ $ 594,000 360,000 300,000 907,500 902.000 1,267,500 01 60,000 Cash Receivables (net) Investment in Lydia, Co. Broadcast licenses Movie library Equipment (net) Goodwill Total assets 362,500 480.000 137,700,000 OM 14.990,000 48,000,000 19,100,000 15,352,500 45,365,000 157,322,000 580,000 58,000 $ 220,209,000 Current liabilities Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity $ (762,500) $ (201,500) (24,700,000) (8,030,000) (175,000,000)" (67,500,000) 67,500,000 $ (964,000) (33,694,000) (175,000,000) (120,200,000) 1309 858 0001 $ (200,462,500) $ (75,731,500) $ 63,098,000 $ 118,000 On January 1, Prine, Inc., acquired 100 percent of Lydia Company's common stock for a fair value of $121,526,000 in cash and stock. Lydia's assets and liabilities equaled their fair values except for its equipment, which was undervalued by $580,000 and had a 10-year remaining life. Prine specializes in media distribution and viewed its acquisition of Lydia as a strategic move into content ownership and creation. Prine expected both cost and revenue synergies from controlling Lydia's artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Prine allocated Lydia's assets and liabilities (including $47,112,000 of goodwill) to a newly formed operating segment appropriately designated as a reporting unit. The fair values of the reporting unit's identifiable assets and liabilities through the first year of operations were as follows. Fair Values Account 1/1 12/31 Cash $ 279,000 $ 308,000 Receivables (net) 596,000 907,500 Movie library (25-year remaining life) 44,450,000 60,600,000 Broadcast licenses (indefinite remaining life) 15,360,000 20,530,000 Equipment (10-year remaining life) 20,840,000 19,870,000 Current liabilities (581,000) (722,500) Long-term debt (6,530,000) (6,495,000) However, Lydia's assets have taken longer than anticipated to produce the expected synergies with Prine's operations. Accordingly. Prine reviewed events and circumstances and concluded that Lydia's fair value was likely less than its carrying amount. At year-end, Prine reduced its assessment of the Lydia reporting unit's fair value to $112,418,000. At December 31, Prine and Lydia submitted the following balances for consolidation. There were no intra-entity payables on that date. Revenues Operating expenses Equity in Lydia earnings Dividends declared Retained earnings, 1/1 Cash Receivables (net) Investment in Lydia Broadcast licenses Movie library Equipment (net) Current liabilities Long-term debt Common stock Prine, Inc. Lydia Co. $ (19,300,000) $(13,800,000) 16,700,000 12,500,000 (1,242,000) 300,000 60,000 (58,200,000) (6,334,000) 594,000 308,000 360,000 907,500 122, 708,000 362,500 14,990,000 480,000 48,000,000 137,700,000 19,100,000 (762,500) (201,500) (24,700,000) (8,030,000) (175,000,000) (67,500,000) a. What is the relevant initial test to determine whether goodwill could be impaired? b. At what amount should Prine record an impairment loss for its Lydia reporting unit for the year? c. What is consolidated net income for the year? d. What is the December 31 consolidated balance for goodwill? e. What is the December 31 consolidated balance for broadcast licenses? f. Prepare a consolidated worksheet for Prine and Lydia (Prine's trial balance should first be adjusted for any appropriate impairment loss). a. What is the relevant initial test to determine whether goodwill could be impaired? b. At what amount should Prine record an impairment loss for its Lydia reporting unit for the year? c. What is consolidated net income for the year? d. What is the December 31 consolidated balance for goodwill? e. What is the December 31 consolidated balance for broadcast licenses? Show less A Goodwill is impaired if the Impairment loss fair value is less than carrying value 20,584,000 b. (16,742,000) Consolidated net Consolidated goodwill Consolidated broadcast licenses | 26,528,000 Prepare a consolidated worksheet for Prine and Lydia (Prine's trial balance should first be adjusted for any appropriate impairment loss). (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one Negative amounts should be indicated by a minus sign. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.) Show less PRINE AND LYDIA Consolidated Worksheet December 31 Adjusting Entries Consolidated Prine, Inc. Lydia Co. Debit Credit $ (19,300,000) $ (13,800,000) 16,700,000 12,500,000 50,000 (1.242,000) 1,242,000 Accounts Revenues Consolidated Totals $ (33,100,000) (29,200,000) Expenses Equity in Lydia earnings Impairment loss Net income/loss $ 16,742,000 $ (62,300,000) (6,334,000) Retained earnings 1/1 Dividends declared Net income $ (58,200,000) 300,000 16,742,000 $ (6,334,000) 60.000 60,000 $ (58,200,000) 300,000 (62,300,000) Retained earnings 12/31 (120,200,000) $ $ $ 594,000 360,000 300,000 907,500 902.000 1,267,500 01 60,000 Cash Receivables (net) Investment in Lydia, Co. Broadcast licenses Movie library Equipment (net) Goodwill Total assets 362,500 480.000 137,700,000 OM 14.990,000 48,000,000 19,100,000 15,352,500 45,365,000 157,322,000 580,000 58,000 $ 220,209,000 Current liabilities Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity $ (762,500) $ (201,500) (24,700,000) (8,030,000) (175,000,000)" (67,500,000) 67,500,000 $ (964,000) (33,694,000) (175,000,000) (120,200,000) 1309 858 0001 $ (200,462,500) $ (75,731,500) $ 63,098,000 $ 118,000