Problem 3-38 (Algo) (LO 3-4, 3-6)

On January 1, Palisades, Inc., acquired 100 percent of Sherwood Companys common stock for a fair value of $120,340,000 in cash and stock. The carrying amounts of Sherwoods 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 Sherwoods artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Palisades allocated all of Sherwoods 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, Sherwoods assets have taken longer than anticipated to produce the expected synergies with Palisadess operations. Accordingly, Palisades reviewed events and circumstances and concluded that Sherwoods fair value was likely less than its carrying amount. At year-end, Palisades assessed the Sherwood reporting units 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.

	Palisades, Inc.			Sherwood Co.
Revenues	$	(18,570,000	)	$	(12,340,000	)
Operating expenses		10,350,000			12,140,000
Equity in Sherwood's earnings		(146,600	)
Dividends declared		385,000			114,000
Retained earnings, 1/1		(52,510,000	)		(2,391,000	)
Cash		396,000			126,000
Receivables (net)		244,000			914,000
Investment in Sherwood		120,372,600
Broadcast licenses		435,000			14,048,000
Movie library		450,000			45,340,000
Equipment (net)		131,170,000			17,670,000
Current liabilities		(202,000	)		(735,000	)
Long-term debt		(22,000,000	)		(7,420,000	)
Common stock		(170,170,000	)		(67,670,000	)

1. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600?

Problem 3-38 (Algo) (LO 3-4, 3-6)

On January 1, Palisades, Inc., acquired 100 percent of Sherwood Companys common stock for a fair value of $120,340,000 in cash and stock. The carrying amounts of Sherwoods 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 Sherwoods artistic content (a large library of classic movies) and its sports programming specialty video operation. Accordingly, Palisades allocated all of Sherwoods 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, Sherwoods assets have taken longer than anticipated to produce the expected synergies with Palisadess operations. Accordingly, Palisades reviewed events and circumstances and concluded that Sherwoods fair value was likely less than its carrying amount. At year-end, Palisades assessed the Sherwood reporting units 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.

	Palisades, Inc.			Sherwood Co.
Revenues	$	(18,570,000	)	$	(12,340,000	)
Operating expenses		10,350,000			12,140,000
Equity in Sherwood's earnings		(146,600	)
Dividends declared		385,000			114,000
Retained earnings, 1/1		(52,510,000	)		(2,391,000	)
Cash		396,000			126,000
Receivables (net)		244,000			914,000
Investment in Sherwood		120,372,600
Broadcast licenses		435,000			14,048,000
Movie library		450,000			45,340,000
Equipment (net)		131,170,000			17,670,000
Current liabilities		(202,000	)		(735,000	)
Long-term debt		(22,000,000	)		(7,420,000	)
Common stock		(170,170,000	)		(67,670,000	)

1. How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600?

How did Palisades determine Sherwood's December 31 carrying amount of $120,372,600? (Amounts to be deducted should be indicated by a minus sign.)

Consideration transferred at 1/1
Equity in Sherwoods earnings:
Revenue	$12,340,000
Operating expenses
Acquisition-date excess amortization		12,340,000
Dividends from Sherwood
Investment in Sherwood 12/31		$12,340,000

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.	Impairment loss
d.	Consolidated net income (loss)
e.	Consolidated goodwill