On January 1, Palisades, Inc., acquired 100 percent of Sherwood Company's common stock for a fair value of $120,340,000 in cash and stock. The carrying amounts of Sherwood's assets and liabilities equaled their fair values except for its equipment, which was undervalued by $534,000 and had a 10-year remaining life. Palisades specializes in media distribution and viewed its acquisition of Sherwood as a strategic move into content ownership and creation. Palisades expected both cost and revenue synergies from controlling Sherwood's artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Palisades allocated all of Sherwood's assets and liabilities (including all $49,745,000 of goodwill recognized in the acquisition) to a newly formed operating segment appropriately designated as a reporting unit. However, Sherwood's assets have taken longer than anticipated to produce the expected synergies with Palisades's operations. Accordingly, Palisades reviewed events and circumstances and concluded that Sherwood's fair value was likely less than its carrying amount. At year-end, Palisades assessed the Sherwood reporting unit's fair value to $110,340,000. At December 31, Palisades and Sherwood submitted the following balances for consolidation. There were no intra-entity payables on that date. Also, Palisades had not yet recorded any goodwill impairment. At December 31, Palisades and Sherwood submitted the following balances for consolidation. There were no intra-entity payables on that date. Also, Palisades had not yet recorded any goodwill impairment. Revenues Operating expenses Equity in Sherwood's earnings Dividends declared Retained earnings, 1/1 Cash Receivables (net) Investment in Sherwood Broadcast licenses Movie library Equipment (net) Current liabilities Long-term debt Common stock Palisades, Inc. Sherwood Co. $ (18,570,000) $(12,340,000) 10,350,000 12,140,000 (146,600) 385,000 114,000 (52,510,000) (2,391,000) 396,000 126,000 244,000 914,000 120,372,600 435,000 14,048,000 450,000 45,340,000 131,170,000 17,670,000 (202,000) (735,000) (22,000,000) (7,420,000) (170,170,000) (67,670,000) a. What is the relevant test to determine whether goodwill is impaired? b. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600? c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? e. What is the December 31 consolidated balance for goodwill? f. Prepare a consolidated worksheet for Palisades and Sherwood (Palisades's trial balance should first be adjusted for any appropriate impairment loss). Req A Req B Req C to E ReqF a. What is the relevant initial test to determine whether goodwill could be impaired? a. Goodwill is impaired if the Req A Req B Reg C to E Req F b. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600? (Amounts to be deducted be indicated by a minus sign.) Consideration transferred at 1/1 Equity in Sherwood's earnings: Revenue Operating expenses Acquisition-date excess amortization Dividends from Sherwood Investment in Sherwood 12/31 Req A Req B Req C to E ReqF c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? (Negative amounts should be entered with a minus sign.) e. What is the December 31 consolidated balance for goodwill? C. d. Impairment loss Consolidated net income (loss) Consolidated goodwill e. PALISADES AND SHERWOOD Consolidated Worksheet December 31 Consolidated Entries Accounts Palisades, Inc. Sherwood Co. Debit Credit Consolidated Totals Revenues Expenses Equity in Sherwood earnings Impairment loss Net income/loss Retained earnings 1/1 Dividends declared Net income/loss Retained earnings 12/31 Cash Receivables (net) Investment in Sherwood Broadcast licenses Movie library Equipment (net) Goodwill Total assets Current liabilities Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity On January 1, Palisades, Inc., acquired 100 percent of Sherwood Company's common stock for a fair value of $120,340,000 in cash and stock. The carrying amounts of Sherwood's assets and liabilities equaled their fair values except for its equipment, which was undervalued by $534,000 and had a 10-year remaining life. Palisades specializes in media distribution and viewed its acquisition of Sherwood as a strategic move into content ownership and creation. Palisades expected both cost and revenue synergies from controlling Sherwood's artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Palisades allocated all of Sherwood's assets and liabilities (including all $49,745,000 of goodwill recognized in the acquisition) to a newly formed operating segment appropriately designated as a reporting unit. However, Sherwood's assets have taken longer than anticipated to produce the expected synergies with Palisades's operations. Accordingly, Palisades reviewed events and circumstances and concluded that Sherwood's fair value was likely less than its carrying amount. At year-end, Palisades assessed the Sherwood reporting unit's fair value to $110,340,000. At December 31, Palisades and Sherwood submitted the following balances for consolidation. There were no intra-entity payables on that date. Also, Palisades had not yet recorded any goodwill impairment. At December 31, Palisades and Sherwood submitted the following balances for consolidation. There were no intra-entity payables on that date. Also, Palisades had not yet recorded any goodwill impairment. Revenues Operating expenses Equity in Sherwood's earnings Dividends declared Retained earnings, 1/1 Cash Receivables (net) Investment in Sherwood Broadcast licenses Movie library Equipment (net) Current liabilities Long-term debt Common stock Palisades, Inc. Sherwood Co. $ (18,570,000) $(12,340,000) 10,350,000 12,140,000 (146,600) 385,000 114,000 (52,510,000) (2,391,000) 396,000 126,000 244,000 914,000 120,372,600 435,000 14,048,000 450,000 45,340,000 131,170,000 17,670,000 (202,000) (735,000) (22,000,000) (7,420,000) (170,170,000) (67,670,000) a. What is the relevant test to determine whether goodwill is impaired? b. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600? c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? e. What is the December 31 consolidated balance for goodwill? f. Prepare a consolidated worksheet for Palisades and Sherwood (Palisades's trial balance should first be adjusted for any appropriate impairment loss). Req A Req B Req C to E ReqF a. What is the relevant initial test to determine whether goodwill could be impaired? a. Goodwill is impaired if the Req A Req B Reg C to E Req F b. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600? (Amounts to be deducted be indicated by a minus sign.) Consideration transferred at 1/1 Equity in Sherwood's earnings: Revenue Operating expenses Acquisition-date excess amortization Dividends from Sherwood Investment in Sherwood 12/31 Req A Req B Req C to E ReqF c. At what amount should Palisades record an impairment loss for its Sherwood reporting unit for the year? d. What is consolidated net income for the year? (Negative amounts should be entered with a minus sign.) e. What is the December 31 consolidated balance for goodwill? C. d. Impairment loss Consolidated net income (loss) Consolidated goodwill e. PALISADES AND SHERWOOD Consolidated Worksheet December 31 Consolidated Entries Accounts Palisades, Inc. Sherwood Co. Debit Credit Consolidated Totals Revenues Expenses Equity in Sherwood earnings Impairment loss Net income/loss Retained earnings 1/1 Dividends declared Net income/loss Retained earnings 12/31 Cash Receivables (net) Investment in Sherwood Broadcast licenses Movie library Equipment (net) Goodwill Total assets Current liabilities Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity