You are performing an accounting analysis on ABC Company and noted excessive goodwill balances relative to reported PPE. The following table was constructed from ABC’s 10-K information. Assume all new goodwill is recognized at the end of the year for the purpose of restatement. Further, assume a tax rate of 30%. The first year to be restated is 2012. ABC has a December 31 fiscal year end. Assume goodwill has a 4-year useful life and that you are adjusting the account. Assume all M&A activity takes place on the last day of the fiscal year. Financial Information on an “As-Reported” Basis
2012 2013 2014 2015
Beginning Balance 20,000,000 23,000,000 26,000,000 31,000,000
New Goodwill 3,000,000 5,000,000 8,000,000 2,000,000
Goodwill Impaired 0 2,000,000 3,000,000 10,000,000
Ending Goodwill 23,000,000 26,000,000 31,000,000 23,000,000
1. On a re-stated basis, how much goodwill should be reported on the 2012 Balance Sheet?
a. nothing
b. $20,000,000
c. $23,000,000
d. $18,000,000
e. $5,000,000
2. In order to complete the restatement process, how much additional goodwill impairment would you have to recognize in 2013?
a. $4,000,000
b. $3,000,000
c. $5,000,000
d. $5,750,000
e. $3,750,000