Presented below is net asset information related to the Shamrock Division of San

Question

Presented below is net asset information related to the Shamrock Division of Santana, Inc.

SHAMROCK DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017
(IN MILLIONS)

$67

200

2,611

217

(2,606

)

The purpose of the Shamrock Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $410 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.

a) Prepare the journal entry to record the impairment at December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

b) At December 31, 2018, it is estimated that the division’s fair value increased to $345 million. Prepare the journal entry to record this increase in fair value. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

SHAMROCK DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017
(IN MILLIONS)

Cash

$67

Accounts receivable

200

Property, plant, and equipment (net)

2,611

Goodwill

217

Less: Notes payable

(2,606

)

Net assets $489

Explanation / Answer

SOLUTION

(A) Journal entry-

Loss on impairment-

(B) No entry is needed for this. After a loss is recognised in goodwill impairment the adjusted carrying amount of the goodwill is its new accounting basis. Therefore under SFAS No. 142 subsequent reversal of previously recognised impairment losses is not recognised.

Date Account titles and Explanation Debit ($) Credit ($) Dec. 31, 2017 Loss on impairment 154,000,000 Goodwill 154,000,000 (To record impairment at Dec.31, 2017)

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