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Assume that on January 1,20X3, investors form New Corp agrees to consolidate the operations of ABC Inc. and DEF Company in a deal valued at $2.2...
Assume that on January 1,20X3, investors form New Corp agrees to consolidate the operations of ABC Inc. and DEF Company in a deal valued at $2.2 billion. New Corp organizes each former entity as an operating segment. Additionally, ABC has two divisions—
ABC Hot and ABC Cold
—
along with DEF that are treated as independent reporting units for internal performance evaluation and management reviews. New Corp recognizes $215 million as goodwill at the merger date of January 1, 20X3 and allocates this entire amount to its reporting units. That information and each reporting unit's acquisition-date fair values are as follows.
New Corp’s Acquisition
-Date Fair Values Reporting Units Goodwill January 1, 20X3 ABC Hot $ 22,000,000 $950,000,000 ABC Cold 155,000,000 748,000,000 DEF Company 38,000,000 502,000,000 In December, 20X3, News Corp, a newspaper company, performs an analysis for each of its three reporting units to assess potential goodwill impairment. News Corp examines the events that may affect the fair values of its reporting units. The analysis reveals that the fair value of each reporting unit likely exceeds its carrying amount except for ABC Cold. The goodwill impairment test then reveals
that ABC Cold’s fair value has fallen to $60 million, well below its current carrying
