Sony is a multinational company headquartered in Tokyo, Japan, with over 1,000 subsidiaries worldwide. Sony decided to expand its entertainment business in the United States, overseen by its subsidiary SonyUSA. Therefore, SonyUSA purchased two companies to form Sony Music and Sony Pictures. Because of these acquisitions, Sony assumed a debt of $1.2 billion and allocated $3.8 billion to goodwill. On Sonys annual report filed with the SEC, Sony reported only two industry segments: electronics and entertainment. Although Sony Music was profitable, Sony Pictures had produced continued losses of approximately $1 billion. Sony suffered a significant loss after amortization and financing costs from the acquisition over the past several years.

Sony wrote down goodwill of $2.7 billion associated with its acquisition of Sony Pictures. Sony combined the results of Sony Music and Sony Pictures and reported them as Sony Entertainment. Sony Entertainment then showed little profit over the years. Sonys consolidated financial statements did not disclose the losses from Sony Pictures.

Sonys chief executive officer has asked your firm to identify and explain any major potential accounting or tax concerns from these facts, but he does not want you to worry about consolidations.

Analyze, consider alternatives, and write a research memo.