Please answer Part 1 and Part 2 of the attached Healthcare Depot Case. The questions I need answered are under the "Required" section of the case. Part 3 doesn't need to be answered. If necessary, please incorporate FASB Codification Standards into your response.

Case 04-9 Healthcare Depot Part 1 Identification of Reporting Units This case study is the first part of a three-part case involving business combinations, goodwill, and other intangible assets. Participants should use the facts and solutions presented in this case study when addressing the requirements of Part 2 Allocation of Corporate Assets, Liabilities, and Goodwill to Reporting Units and Part 3 Goodwill Impairment Test. Healthcare Depot (the \"Company\") is a leading wholesale distributor of pharmaceutical products and related health-care solutions in the United States. During the current year, the Company changed independent auditors. As part of its first-year audit procedures for the December 31, 2010, year-end, the new audit team is reviewing the Company's determination of reporting units; its allocation of corporate assets, liabilities, and goodwill; and its ongoing impairment tests required under ASC 350, IntangiblesGoodwill and Other (FASB Statement No. 142, Goodwill and Other Intangible Assets). Virginia Blackburn, Healthcare Depot's CFO, was responsible for the initial determination of the Company's reporting units and allocation of corporate assets, liabilities, and goodwill, and is responsible for the ongoing review of goodwill impairment under ASC 350. Bob Pedrotti, the new engagement partner, asked to review the Company's analysis for the identification of reporting units. Virginia gave Bob the following memo (see Handout 1), which she prepared upon adoption of ASC 350. The memo identifies Healthcare Depot's current reporting units and documents management's assessment of the Company's operating segments and components in accordance with ASC 350 and ASC 280, Segment Reporting (Statement 131, Disclosures about Segments of an Enterprise and Related Information). (Note that no changes in the corporate reporting structure have occurred since adoption of ASC 350.) Required: Has management appropriately identified Healthcare Depot's reporting units (see Handout 1)? Copyright 2007 Deloitte Development LLC All Rights Reserved. Case 04-9: Healthcare DepotPart 1 Handout 1 Page 1 MEMO To: From: Date: RE: Files Virginia Blackburn, CFO, Healthcare Depot August 31, 2010 Identification of Reporting Units Reporting Units Definition ASC 350-20-35-33 through 35-38 (Paragraphs 30 and 31 of FASB Statement No. 142), Goodwill and Other Intangible Assets, define a reporting unit as: The provisions of Topic 280 shall be used to determine the reporting units of an entity. A component of an operating segment is a reporting unit if the component constitutes a business or a nonprofit activity for which discrete financial information is available and segment management, as that term is defined in paragraph 280-10-50-7, regularly reviews the operating results of that component. Subtopic 805-10 includes guidance on determining whether an asset group constitutes a business.... However, two or more components of an operating segment shall be aggregated and deemed a single reporting unit if the components have similar economic characteristics. Paragraph 280-10-50-11 shall be considered in determining if the components of an operating segment have similar economic characteristics. An operating segment shall be deemed to be a reporting unit if all of its components are similar, if none of its components is a reporting unit, or if it comprises only a single component. Reporting units will vary depending on the level at which performance of the segment is reviewed, how many businesses the operating segment includes, and the similarity of those businesses. In other words, a reporting unit could be the same as an operating segment, which could be the same as a reportable segment, which could be the same as the entity as a whole (entity level). An entity that is not required to report segment information in accordance with Topic 280 is nonetheless required to test goodwill for impairment at the reporting unit level. That entity shall use the guidance in paragraphs 280-10-50-1 through 50-9 to determine its operating segments for purposes of determining its reporting units. Copyright 2007 Deloitte Development LLC All Rights Reserved. Case 04-9: Healthcare DepotPart 1 Handout 1 Page 2 ASC 280-10-50-1 (Paragraph 10 of FASB Statement No. 131, Disclosures About Segments of an Enterprise and Related Information), defines an operating segment as a component of a public entity that has the following characteristics: a. It engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity). b. Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. c. Its discrete financial information is available. As indicated in Healthcare Depot's ASC 280 operating segments footnote disclosure (which has been audited), the Company's operating segments have been aggregated into two reportable segments: (1) Pharmaceutical Distribution and (2) Medical-Surgical Products and Services (\"Medical-Surgical\"). In addition, the footnote indicates that, for disclosure purposes, the following two operating segments are aggregated to form the Pharmaceutical Distribution reportable segment: Drug Depot Company (\"DDC\"), which sells pharmaceuticals, over-the-counter medicines, health and beauty aids, and other health-related products to hospitals, managed care facilities, independent and chain retail pharmacies, and food/drug combination stores. Specialty Healthcare (\"Specialty\"), which sells a comprehensive supply of injectables, vaccines, plasma, and oncology products to physicians, clinics, and other healthcare providers. Healthcare Depot believes that Medical-Surgical, DDC, and Specialty are all operating segments under ASC 280, and thus represent the starting point for identifying the reporting units. Healthcare Depot has identified the following components for the noted operating segments: Medical-Surgical No components. DDC DDC Distribution Corp. is the primary operating component of the segment and is responsible for procurement, sales, and distribution for all products and channels. Healthcare Holding (\"HC Holding\") is a legal entity that was created by DDC to hold its various investments in private and start-up medical research companies. Copyright 2007 Deloitte Development LLC All Rights Reserved Case 04-9: Healthcare DepotPart 1 Handout 1 Page 3 Specialty Oncology Care Specialists (\"OCS\") specializes in the distribution of oncology products. Diabetes Depot specializes in the distribution of injectables and vaccines for diabetes. \"Segment managers\" review monthly operating profit and loss statements and internal financial information (e.g., long-range plans, forecasts, actual results) for MedicalSurgical, DDC, HC Holding, OCS, and Diabetes Depot. In addition, OCS and Diabetes Depot have common customer contracts, which is feasible because of similarities in products and methods of production and distribution. As a result, the long-term financial performances of these two components have historically been similar. On the basis of the above, the Company believes that the following organizational chart identifies Healthcare Depot's five \"reporting units\" as defined by ASC 350: HEALTHCARE DEPOT Pharmaceutical Distribution NO Drug Depot Company (DDC) NO DDC Distribution Corp. YES - #2 Healthcare Holding (HC Holding) YES - #3 Medical-Surgical Products and Services YES - #1 Specialty Healthcare (Specialty) NO Oncology Care Specialists (OCS) YES - #4 Diabetes Depot YES - #5 Copyright 2007 Deloitte Development LLC All Rights Reserved Case 04-9: Healthcare DepotPart 2 Case 04-9 Healthcare Depot Part 2 Allocation of Corporate Assets, Liabilities, and Goodwill to Reporting Units This case study is the second part of a three-part case involving business combinations, goodwill, and other intangible assets. Participants should use the facts and solutions presented in Part 1 Identification of Reporting Units when addressing the requirements of this case study. Bob Pedrotti (the engagement partner) also requested that a review be performed of the Company's allocations of corporate assets, liabilities, and goodwill to reporting units for the purpose of testing goodwill for impairment to ensure that management was properly interpreting the guidance of ASC 350, Intangibles-Goodwill and Other (FASB Statement No. 142, Goodwill and Other Intangible Assets). Virginia Blackburn (CFO) provided him with an excerpt from the \"Summary of Corporate Allocations to Reporting Units\" report that summarizes management's allocation of corporate assets, liabilities, and goodwill from the corporate ledger to the reporting units (see Handout 2). Required: Has management appropriately allocated the (selected) corporate assets, liabilities, and goodwill to the reporting units for the purpose of testing goodwill for impairment (see Handout 2)? Copyright 2007 Deloitte Development LLC All Rights Reserved. Case 04-9: Healthcare DepotPart 2 Handout 2 Page 1 SUMMARY OF ALLOCATION OF CORPORATE ASSETS, LIABILITIES AND GOODWILL TO REPORTING UNITS Source: Corporate Balance Sheet as of December 31, 2010 Prepared by Healthcare Depot ASSETS Trademark Net Goodwill Net (a) (b) Restructuring Accrual Environmental Liability Pension Obligation (c) (d) (e) 4,523,000 25,350,000 LIABILITIES 643,000 8,750,000 1,960,000 (a) Healthcare Depot acquired the Medical-Surgical reportable segment and \"M-S\" trademark in 2003. Since the acquisition, the Company has operated Medical-Surgical as a stand-alone entity. However, the trademark was retained on the corporate ledger for accounting purposes. To test goodwill for impairment, the Company allocated 100 percent of the carrying value of the trademark to the Medical-Surgical reporting unit. (b) This amount represents previously recognized entity-level goodwill, which is a result of synergies obtained from former acquisitions and was being amortized over a 40year period. Because all reporting units are expected to benefit from these synergies, Healthcare Depot allocated the goodwill to the reporting units on the basis of their relative fair values. (c) In December 2010, Healthcare Depot announced a company-wide restructuring program. The remaining accrual comprises the estimated costs for (1) the closure of two distribution facilities at OCS ($425,000) and (2) a 25 percent reduction in workforce at Diabetes Depot ($218,000). Because these liabilities are directly related to the operations of the specifically identified reporting units (OCS and Diabetes Depot) and would be considered in determining the fair value of the reporting units, the Company deemed it appropriate to allocate liabilities of $425,000 and $218,000 to the OCS and Diabetes Depot reporting units, respectively. (d) In May 2009, Healthcare Depot disposed of a reporting unit that manufactured packaging supplies. At the time of the sale, several of the reporting unit's facilities were under inspection by the Environmental Protection Agency. The results of the environmental impact study indicated a land contamination issue that would require remedial action; thus, the environmental liability was removed from the sales agreement's scope and was retained by the Company. The Company deemed it appropriate to allocate the liability to the current reporting units on the basis of their relative fair values. (e) Healthcare Depot has several defined benefit pension plans covering virtually all salaried and hourly employees. For each employee, the benefits are based on years of service and average compensation. As a result, the Company deemed it appropriate to allocate the pension obligation to the reporting units on the basis of their relative fair values. Copyright 2007 Deloitte Development LLC All Rights Reserved Case 04-9 Healthcare Depot Part 3 Goodwill Impairment Test This case study is the third part of a three-part case involving business combinations, goodwill, and other intangible assets. Participants should use the facts and solutions presented in Part 1 Identification of Reporting Units and Part 2 Allocation of Corporate Assets, Liabilities, and Goodwill to Reporting Units when addressing the requirements of this case study. For purposes of Part 3, assume that the fair values and carrying values presented are appropriately calculated. To test its goodwill for impairment under ASC 350, Intangibles-Goodwill and Other (FASB Statement No. 142, Goodwill and Other Intangible Assets (Statement 142)), Healthcare Depot provided the following information as of January 1, 2010, the date it chose to perform its annual goodwill impairment test for each of its reporting units. Healthcare Depot's effective tax rate is 40 percent. Goodwill Impairment Test Step One Healthcare Depot Selected Business Components MedicalDDC Distribution HC Surgical Corp. Holding Fair Value1 Carrying Value of Net Assets (Excluding Goodwill) Carrying Value of Goodwill $125,000,000 $236,000,000 118,800,000 3,200,000 231,700,000 10,500,000 $75,000,000 72,250,000 2,150,000 1 Fair value was determined using the best information available and reflects an amount at which the reporting unit could be bought or sold in a current transaction between willing parties. Required: Using the above information, perform step one of the goodwill impairment test for each of the selected reporting units, as required by ASC 350. Copyright 2007 Deloitte Development LLC All Rights Reserved. Case 04-9: Healthcare DepotPart 3 Page 2 Goodwill Impairment Test Step Two Healthcare Depot Selected Business Components MedicalDDC Distribution HC Surgical Corp. Holding Fair Value Tangible Net Assets $27,950,000 $53,000,000 Fair Value Recognized Intangibles 61,000,000 75,000,000 Fair Value Unrecognized Intangibles: Assembled Workforce 3,250,000 9,000,000 Patent 0 75,000,000 Customer List 0 15,500,000 In-Process R&D 4,700,000 12,000,000 Computer Software 5,000,000 0 $24,350,000 45,000,000 1,500,000 0 5,000,000 0 0 Note that fair value amounts were determined using the best information available and reflect an amount at which the net assets or intangible assets could be bought or sold in a current transaction between willing parties. Required: For reporting units in which the carrying amount exceeds its fair value, review the information above and perform the second step of the goodwill impairment test. Indicate the appropriate journal entry or entries to record to recognize goodwill impairment loss, if any. Copyright 2007 Deloitte Development LLC All Rights Reserved