Problem - Destin Company recently acquired several businesses and recognized goodwill in each acquisition. Destin has allocated the resulting goodwill to its three reporting units: Sand Dollar, Salty Dog, and Baytowne. Destin opts to skip the qualitative assessment and therefore performs a quantitative goodwill impairment review annually.
In its current year assessment of goodwill, Destin provides the following individual asset and liability values for each reporting unit:
Carrying AmountsFair ValuesSand Dollar Tangible assets$214,000 $228,100 Trademark 192,000 165,100 Customer list 110,250 121,050 Goodwill 173,200 ? Liabilities (51,250) (51,250)Salty Dog Tangible assets$295,000 $295,000 Unpatented technology 183,000 134,500 Licenses 94,000 108,300 Goodwill 201,250 ? Baytowne Tangible assets$207,750 $220,750 Unpatented technology 0 128,250 Copyrights 67,500 107,200 Goodwill 135,000 ?
The fair values for each reporting unit (including goodwill) are $613,000 for Sand Dollar, $748,800 for Salty Dog, and $739,200 for Baytowne. To date, Destin has reported no goodwill impairments.
1. Determine which of Destin's reporting units require both steps to test for goodwill impairment.
2. How much goodwill impairment should Destin report this year?