question^

Analysis j. Suppose that on the first day of the next fiscal year, the federal statutory tax rate changed from 35% to 21%. What journal entry related to the net deferred tax asset would ZAGG record? You may assume that the state statutory tax rate will not change. [Hint: when income tax rates change, companies must "re-value" their deferred income tax assets and liabilities.] k. On June 21, 2016, ZAAG acquired iFrogz for $96.2 million. The excess of the acquisition price over the fair value of iFrogz's net assets (ie, tangible assets and identifiable intangible assets, net of assumed liabilities) was $6.925 million, which was recorded as "Goodwill" at the time of the acquisition. a. For book purposes, goodwill is tested annually for impairment. In Note 7, ZAGG discloses that it conducted a goodwill impairment analysis during the fourth quarter of 2017. What was the amount of the impairment in goodwill that resulted from this analysis in 2017? b. For tax purposes, goodwill is amortized annually and is, therefore, a deductible expense on a company's tax return. ZAGG amortized goodwill over a period of 15 years. Note 8 reports a deferred income tax asset of $1,801,000 related to goodwill at December 31 , 2017. Explain how goodwill created a deferred income tax asset for ZAGG. Show how ZAGG arrived at this number. You may assume a 35% federal statutory tax rate and a 3% blended state statutory tax rate and that ZAGG began amortizing goodwill for tax purposes starting in July, 2016. [Hint: determine the net (ie, after amortization) value of goodwill for tax purposes to compare to the net book value of goodwill.] RAGE INC AND SUBSIDIAIFS CONSOLIDATYD HALANCE SITRETS (ie thausandh, except par value) HABH RTES AND EMiFT ZACAE IVE AVD SURSIDIABEES (pues ) See accompanying notes to consolidated financial statements. (7) GOODWILL. \& INTANGIBLE ASSETS Impairment of Goodwill and Intangible Asets For the year ended December 31,2017, the Company recorded an impairment of goodwill in the amount of 55,441 for its iFrogz reporting unit within the iFrogx operating segment when it was determinod that the carrying value of goodwill exceeded its fair value, which was determined daring an impaiment analysis performed during the fourth quarter of 2017. In conjunction with the impnimment test, the Conpany considered factors such as the overall decline in the market price of the company's stock and decline in market capitaliration for a sustained period as indicaton for potential goodwill impairment. In determining the amount of impairment within the analysis, we considered both the income approach, utilizing a discounted cash flow analysis, and murket approach, which considers what other purchasers and sellers in the market have paid for companies reasonably similar to the reporting unit. The goodwill impairment of 55,441 is incloded as a component of impaiment of goodwill and intangibles in the consolidated statement of operations. The changes in the carrying amount of goodwill for the year ended December 31, 2017 and 2016, are as follows: (8) INCOME TAXES The components of income tax (provisioe) benefit for the years ended December 31, 2017, 2016 and 2015, are: The following is a reconciliation of the incoene taxes coenpund using be federal statuary nate to the provision for income taxes for the years ended December 31,2017,2016 and 2015: The tax effects of tempotary differences that gave rise to significant porbioes of deferred tax assets and liahilities at December 31, 2017 and 2016, are as follows: At December 31, 2017, the Company recended a full valuation allowasce agihat a defcrod ax asset genented by losses on its equity method investment in H2O. H2O is a developencet stage enterprise and given current operations and uncertainty of future profitability, management has determiscd dhat it is more likely thun not that the deferted tax asset will not be realirable. Given this, a full valuation allowance of 5713 has beca tecorded againat the deferred tax asse! The Company has not recorded a tax benefit at December 31,2017 and 2016 for operating losses in France and the UK from operations of iFrogz Europe SAS (gross cumulative operating loss of \$1,280). Operations for iFrogz Europe and ZAGG Europe have been transitioned to Ireland and therefore, we do not expect future taxable income within France and the UK to offset current net operating losses. For all other deferred tax assets, no valuation allowance has been recorded at December 31, 2017 and 2016, as management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets. The Company has not recognized a deferred tax liability for the undistributed eamings of its foreign operations that arose in 2017 and prior years as the Company considers these earnings to be indefinitely reinvested. Cash held by foreign entities that is considered permanently re-invested totaled $3,531 as of December 31,2017 . If this cash were repatriated to the United States, outside the settlement of intercompany payables, the Company would need to acerue and pay the related tax, however, the Company considers these funds permanently re-invested and has no plans to repatriate these funds. The Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2017 and 2016, the Company recorded a tax contingency of $61 and $61, respectively, related to foreign taxes at the iFrogz segment. For the years ended December 31, 2017,2016, and 2015, the Company recorded \$0, \$0, and \$201, respectively in interest and penalties, which were included as a component of income tax provision. The Company is currently not under examination by any federal or state tax authority, but remains subject to income tax examinations for each of its open tax years, which extend back to 2009 for federal income tax purposes and 2008 for state income tax purposes. Analysis j. Suppose that on the first day of the next fiscal year, the federal statutory tax rate changed from 35% to 21%. What journal entry related to the net deferred tax asset would ZAGG record? You may assume that the state statutory tax rate will not change. [Hint: when income tax rates change, companies must "re-value" their deferred income tax assets and liabilities.] k. On June 21, 2016, ZAAG acquired iFrogz for $96.2 million. The excess of the acquisition price over the fair value of iFrogz's net assets (ie, tangible assets and identifiable intangible assets, net of assumed liabilities) was $6.925 million, which was recorded as "Goodwill" at the time of the acquisition. a. For book purposes, goodwill is tested annually for impairment. In Note 7, ZAGG discloses that it conducted a goodwill impairment analysis during the fourth quarter of 2017. What was the amount of the impairment in goodwill that resulted from this analysis in 2017? b. For tax purposes, goodwill is amortized annually and is, therefore, a deductible expense on a company's tax return. ZAGG amortized goodwill over a period of 15 years. Note 8 reports a deferred income tax asset of $1,801,000 related to goodwill at December 31 , 2017. Explain how goodwill created a deferred income tax asset for ZAGG. Show how ZAGG arrived at this number. You may assume a 35% federal statutory tax rate and a 3% blended state statutory tax rate and that ZAGG began amortizing goodwill for tax purposes starting in July, 2016. [Hint: determine the net (ie, after amortization) value of goodwill for tax purposes to compare to the net book value of goodwill.] RAGE INC AND SUBSIDIAIFS CONSOLIDATYD HALANCE SITRETS (ie thausandh, except par value) HABH RTES AND EMiFT ZACAE IVE AVD SURSIDIABEES (pues ) See accompanying notes to consolidated financial statements. (7) GOODWILL. \& INTANGIBLE ASSETS Impairment of Goodwill and Intangible Asets For the year ended December 31,2017, the Company recorded an impairment of goodwill in the amount of 55,441 for its iFrogz reporting unit within the iFrogx operating segment when it was determinod that the carrying value of goodwill exceeded its fair value, which was determined daring an impaiment analysis performed during the fourth quarter of 2017. In conjunction with the impnimment test, the Conpany considered factors such as the overall decline in the market price of the company's stock and decline in market capitaliration for a sustained period as indicaton for potential goodwill impairment. In determining the amount of impairment within the analysis, we considered both the income approach, utilizing a discounted cash flow analysis, and murket approach, which considers what other purchasers and sellers in the market have paid for companies reasonably similar to the reporting unit. The goodwill impairment of 55,441 is incloded as a component of impaiment of goodwill and intangibles in the consolidated statement of operations. The changes in the carrying amount of goodwill for the year ended December 31, 2017 and 2016, are as follows: (8) INCOME TAXES The components of income tax (provisioe) benefit for the years ended December 31, 2017, 2016 and 2015, are: The following is a reconciliation of the incoene taxes coenpund using be federal statuary nate to the provision for income taxes for the years ended December 31,2017,2016 and 2015: The tax effects of tempotary differences that gave rise to significant porbioes of deferred tax assets and liahilities at December 31, 2017 and 2016, are as follows: At December 31, 2017, the Company recended a full valuation allowasce agihat a defcrod ax asset genented by losses on its equity method investment in H2O. H2O is a developencet stage enterprise and given current operations and uncertainty of future profitability, management has determiscd dhat it is more likely thun not that the deferted tax asset will not be realirable. Given this, a full valuation allowance of 5713 has beca tecorded againat the deferred tax asse! The Company has not recorded a tax benefit at December 31,2017 and 2016 for operating losses in France and the UK from operations of iFrogz Europe SAS (gross cumulative operating loss of \$1,280). Operations for iFrogz Europe and ZAGG Europe have been transitioned to Ireland and therefore, we do not expect future taxable income within France and the UK to offset current net operating losses. For all other deferred tax assets, no valuation allowance has been recorded at December 31, 2017 and 2016, as management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize its deferred tax assets. The Company has not recognized a deferred tax liability for the undistributed eamings of its foreign operations that arose in 2017 and prior years as the Company considers these earnings to be indefinitely reinvested. Cash held by foreign entities that is considered permanently re-invested totaled $3,531 as of December 31,2017 . If this cash were repatriated to the United States, outside the settlement of intercompany payables, the Company would need to acerue and pay the related tax, however, the Company considers these funds permanently re-invested and has no plans to repatriate these funds. The Company recognizes the impact of a tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. As of December 31, 2017 and 2016, the Company recorded a tax contingency of $61 and $61, respectively, related to foreign taxes at the iFrogz segment. For the years ended December 31, 2017,2016, and 2015, the Company recorded \$0, \$0, and \$201, respectively in interest and penalties, which were included as a component of income tax provision. The Company is currently not under examination by any federal or state tax authority, but remains subject to income tax examinations for each of its open tax years, which extend back to 2009 for federal income tax purposes and 2008 for state income tax purposes