Question
King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. The top management of King is convinced that
King Company is contemplating the purchase of a smaller company, which is a distributor of King's products. The top management of King is convinced that the acquisition will result in significant synergies in its selling and distribution functions. The financial management group (of which you are a part) has been asked to prepare some analysis of the effects of the acquisition on the combined company's financial statements. This is the first acquisition for King, and some of the senior staff insist that based on their recollection of goodwill accounting, any goodwill recorded on the acquisition will result in a drag on future earnings for goodwill amortization. Other younger members of the staff argue that goodwill accounting has changed. Your supervisor asks you to research this issue.
Note: One main purpose of this assignment is for you to understand how to use the FASB Codification. Use the search box, click links and explore to find what you need to meet the requirements of the assignment.
What is the quantitative impairment test? Are defined taxes considered in the test? Explain. Your answer should come from the Codification with a reference and citation.
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