Hammerhead Paper Company owns a press used in the production of fine paper products. The press originally

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Hammerhead Paper Company owns a press used in the production of fine paper products. The press originally cost $2,000,000, and it has a current carrying amount of $1,200,000. A decrease in the demand for fine paper products has caused the company to reassess the future cash flows from using the machine. The company now estimates that it will receive cash flows of $160,000 per year for 12 years. The company uses a 10 percent discount rate to compute the present value for this investment. A similar machine recently sold for $1,000,000 in the secondhand market. Hammerhead estimates that it would cost $50,000 to sell the machine.

Required
a. Compute the amount of Hammerhead’s press impairment, if any, under U.S. GAAP and IFRS.
Sterling Co. acquires Vineyard Aging, Inc., on January 1, 2010, by paying $2,000,000 in cash. At the date of acquisition, the price is allocated as follows:
Price paid .................. $ 2,000,000
Fair value of Vineyard’s identifiable assets ..... (1,600,000)
Goodwill ................... $ 400,000
One year later on December 31, 2010, Sterling estimates the fair value of the unit to be $1,800,000. The carrying value of Vineyard’s identifiable assets is $1,500,000 after impairment tests are applied.

Required
b. Compute the amount of Sterling’s goodwill impairment, if any.
c. How is the goodwill impairment reflected in the financial statements?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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