On January 1, Prine, Inc., acquired 100 percent of Lydia Company's common stock for a fair value of $128,080,750 in cash and stock. Lydia's assets and liabilities equaled their fair values except for its equipment, which was undervalued by $522,500 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 $53,467,750 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 Cash Receivables (net) Movie library (25-year remaining life) Broadcast licenses (indefinite remaining life) 15,620,000 20,690,000 Equipment (10-year remaining life) Current liabilities Long-term debt 12/31 $ 231,000 766,000 568,0001,082,500 43,950,000 66,980,000 21,370,000 19,990,000 (576,000 795,000) (6,550,000) (6,275,000) 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 $119,758,500 At December 31, Prine and Lydia submitted the following balances for consolidation. There were no intra-entity payables on that date Prine, Inc $ (20,000,000) (18,700,000) Lydia Co. 16,800,000 100,000 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 13,400,000 (1,847,750) 400,000 (58,700,000) (6,590,500) 766,000 , 082, 500 561,750 392,500 129,828,500 522,500 510,000 138,500,000 14,280,000 47,500,000 20,400,000 (158,000) (27,600,000) (7,980,000) (175,000,000) 67,500,000) (967,500) 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) Show lessA Goodwill is impaired if the Impairment loss Consolidated net Consolidated goodwill Consolidated broadcast licenses C
