Problem - On January 1, 2010, Innovus, Inc., acquired 100 percent of the common stock of ChipTech Company for $670,000 in cash and other fair-value consideration. ChipTech's fair value was allocated among its net assets as follows:
Fair value of consideration transferred for ChipTech $670,000
Book value of ChipTech:
Common stock and APIC $130,000
Retained earnings 370,000 500,000
Excess fair value over book value to 170,000
Trademark (10-year remaining life) 40,000
Existing technology (5-year remaining life) 80,000 120,000
Goodwill $ 50,000
The December 31, 2011, trial balances for the parent and subsidiary follow:
Innovus ChipTech
Revenues $ (990,000) $(210,000)
Cost of goods sold 500,000 90,000
Depreciation expense 100,000 5,000
Amortization expense 55,000 18,000
Dividend income (40,000) -0-
Net income $ (375,000) $ (97,000)
Retained earnings 1/1/11 $(1,555,000) $(450,000)
Net income (375,000) (97,000)
Dividends paid 250,000 40,000
Retained earnings 12/31/11 $(1,680,000) $(507,000)
Current assets $ 960,000 $ 355,000
Investment in ChipTech 670,000
Equipment (net) 765,000 225,000
Trademark 235,000 100,000
Existing technology -0- 45,000
Goodwill 450,000 -0-
Total assets $ 3,080,000 $ 725,000
Liabilities $ (780,000) (88,000)
Common stock (500,000) (100,000)
Additional paid-in capital (120,000) (30,000)
Retained earnings 12/31/11 (1,680,000) (507,000)
Total liabilities and equity $(3,080,000) $(725,000)
Required
a. Using Excel, compute consolidated balances for Innovus and ChipTech. Either use a worksheet approach or compute the balances directly.
b. Prepare a second spreadsheet that shows a 2011 impairment loss for the entire amount of goodwill from the ChipTech acquisition.