Aaham2e CH 04 Solutions Final

CHAPTER 4
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS
1.
b
Goodwill at the date of acquisition is $10,000,000 ( = $16,000,000 4,000,000 +
8,000,000 10,000,000). Goodwill at 1/1/14 is $10,000,000 2,000,000 = $8,000,000.
Land, buildings and equipment revaluation at 1/1/14 is a credit of $8,000,000 [3 x
(8,000,000/20)] = $(6,800,000).
Intangibles revaluation at 1/1/14 = $10,000,000 [3 x ($10,000,000/5)] = $4,000,000.
Eliminating entry R is as follows:
Goodwill
Identifiable intangibles
8,000,000
4,000,000
Land, buildings and
equipment
Investment in Salem
2.
b
Eliminating entry O is as follows:
Operating expenses
Land, buildings and equipment
2,100,000
400,000
Goodwill
3.
6,800,000
5,200,000
500,000
2,000,000
a
Calculation of Equity in Net Income:
Salems reported net income
Revaluation writeoffs:
Land, buildings and equipment depreciation
Identifiable intangibles amortization
Goodwill impairment loss
Equity in income of Salem
Solutions Manual, Chapter 4
$ 2,500,000
400,000
(2,000,000)
(500,000)
$ 400,000
Cambridge Business Publishers, 2013

1
4.
c
Original cost
Change in Salems retained earnings to 1/1/14
3 years land, buildings and equipment depreciation
3 years identifiable intangibles amortization
Goodwill impairment loss to 1/1/14
Investment balance, 1/1/14
Equity in net income, 2014
5.
c
Book value > undiscounted cash flows?
Fair value
Book value
Impairment loss
6.
Customer lists
No
--
Brand names
Yes
$3,400,000
5,200,000
$1,800,000
d
Step one: Division book value > fair value?
Step two:
Fair value of goodwill
Book value of goodwill
Impairment loss
7.
$ 16,000,000
14,000,000
1,200,000
(6,000,000)
(2,000,000)
23,200,000
400,000
$23,600,000
Division 1
Yes
Division 2
Yes
$1,000,000
1,600,000
$ 600,000
$8,000,000
6,400,000
-0-
Division 1
$14,000,000
16,000,000
2,000,000
$ 1,600,000
Division 2
$20,000,000
24,000,000
4,000,000
$ 4,000,000
c
Fair value of division
Book value of division
Potential goodwill impairment
Actual impairment loss

2
Advanced Accounting, 2nd Edition
8.
d
Fair value
Book value
Impairment loss
9.
10.
Customer lists
$1,200,000
1,500,000
$ 300,000
Brand names
$3,400,000
5,200,000
$1,800,000
$500,000 100,000 = $400,000.

3
EXERCISES
E4.1
Equity Method Accounting
Calculation of Equity in Net Income:

Johnsons reported net income
Plant assets $50,000,000/25
Equity in net income of Johnson
Entries made by George during 2013:
Investment in Johnson
Capital stock
$ 85,000,000
(2,000,000)
(20,000,000)
$ 63,000,000
500,000,000
500,000,000
63,000,000
Equity in net income of

Johnson
Cash
63,000,000
30,000,000
E4.2
30,000,000
Equity Method Income and Working Paper Eliminations
(all amounts in millions)

a.

Investment balance, 1/1/13 = $2,000 + $200
Change
2013 dividends
2013 equity income accrual
Writeoff of plant asset revaluation = ($160/10)
Sabers 2013 net income
$2,286
2,200
86
60
146
16
$ 162
b.
Sabers stockholders equity, 1/1/13

2013 net income
2013 dividends
Sabers stockholders equity, 1/1/14
$2,000
162
(60)
$2,102
c.
Sabers 2014 net income

Extra depreciation on revalued plant assets
Equity income accrual
$ 130
(16)
$ 114

4
d.
(C)
(E)
Stockholders Equity
Saber
Investment in Saber
(R)
Plant assets, net
Goodwill
(O)
Depreciation expense
e.
114
Dividends Saber
Investment in Saber
2,102
144
40
Investment in Saber
16
Plant assets, net
40
74
2,102
184
16
At the beginning of 2025, the plant assets are fully depreciated and the remaining balance
for goodwill is $40 - $30 = $10.
(R)
Goodwill
10
Investment in S
10
Entry (O) is not needed since no revaluations are written off in 2025.

5
E4.3
Consolidation at End of First Year
a.
The acquisition entry is as follows:

Investment in Saddlestone
Merger expenses
Capital stock
Contingent consideration
liability
Cash
10,300,000
250,000
10,000,000
300,000
250,000
Calculation of 2013 equity in net income:

Saddlestones reported net income
Revaluation writeoff:
Identifiable intangibles $2,000,000/5
Equity in net income of Saddlestone
Peaks equity method entries for 2013:
Saddlestone
Cash
$ 3,000,000
(400,000)
$ 2,600,000
2,600,000
2,600,000
1,000,000
b.
Calculation of goodwill is as follows:

Acquisition cost
Book value of Saddlestone
Excess of acquisition cost over book value
Goodwill
Consolidation working paper eliminating entries for 2013:
(C)
Saddlestone
Dividends Saddlestone
(E)
Stockholders equity
Saddlestone, 1/1
$ 10,300,000
(7,200,000)
3,100,000
(2,000,000)
$ 1,100,000
2,600,000
1,000,000
1,600,000
7,200,000

6
1,000,000
7,200,000
E4.3
continued
(R)
Goodwill
2,000,000
1,100,000
3,100,000
(O)
Amortization expense
400,000
E4.4
Eliminating Entries after First and Second Years
a.
Calculation of equity in net income for 2014:
400,000
Safecos reported net income

Equipment $500,000/5
Inventory
Equity in net income of Safeco
$ 1,600,000
(100,000)
(200,000)
(50,000)
$ 1,250,000
Peerlesss entries for 2014:

Investment in Safeco
8,000,000
Cash
8,000,000
1,250,000
Safeco
1,250,000
Cash
600,000
600,000
Calculation of goodwill is as follows:

Acquisition cost
Book value of Safeco
Fair value less book value:
Equipment
Inventory
Goodwill
500,000
200,000
$
8,000,000
(7,000,000)
1,000,000
(700,000)
300,000

7
E4.4
continued
(C)
Safeco
1,250,000
Dividends Safeco
600,000
650,000
(E)
Stockholders equitySafeco,
1/1
7,000,000
7,000,000
(R)
Equipment, net
Inventory
Goodwill
500,000
200,000
300,000
1,000,000
(O)
Cost of goods sold
100,000
200,000
50,000
Equipment, net
Inventory
Goodwill
b.
100,000
200,000
50,000

Safecos reported net income
Revaluation writeoff:
$ 2,000,000
(100,000)
$ 1,900,000
Peerlesss equity method entries for 2015:

1,900,000
Cash
800,000

8
1,900,000
800,000
E4.4
continued
The Investment in Safeco balance at December 31, 2015 is $8,000,000 + 1,250,000
600,000 + 1,900,000 800,000 = $9,750,000.
(C)
1,900,000
Dividends Safeco
(E)
Stockholders equitySafeco,
1/1
800,000
1,100,000
8,000,000
8,000,000
Stockholders equitySafeco at 1/1/2015 = $7,000,000 + 1,600,000 600,000 =
$8,000,000
(R)
Equipment, net
Goodwill
400,000
250,000
(O)
100,000
Equipment, net
650,000
100,000

9
E4.5
Equity Method, Eliminating Entries, Several Years after Acquisition
a.
Calculation of total goodwill is as follows:

Acquisition cost
Book value of Oslo
Land
Buildings
Long-term debt
Goodwill
b.
450,000
(400,000)
1,000,000
250,000
6,000,000
(2,500,000)
3,500,000
(1,300,000)
$ 2,200,000
Calculation of Equity in net income for 2014:

Oslos reported net income
Buildings $(400,000)/20
Long-term debt $250,000/10
Equity in net income of Oslo
c.
$ 450,000
20,000
(25,000)
(60,000)
$ 385,000
Calculation of Investment in Oslo, 12/31/14

Investment in Oslo, 1/1/06
Oslos reported income, 2006-2013
Oslos reported dividends, 2006-2013
Revaluation writeoffs, 2006-2013:
Buildings $[(400,000)/20] x 8
Identifiable intangibles (full balance)
Long-term debt $[250,000/10] x 8
Oslos dividends, 2014

10
$ 6,000,000
4,000,000
(1,200,000)
160,000
(1,000,000)
(200,000)
(300,000)
7,460,000
385,000
(100,000)
$ 7,745,000
E4.5
continued
d.

(C)
Equity in net income of Oslo
385,000
Dividends Oslo
Investment in Oslo
(E)
Stockholders equityOslo, 1/1
100,000
285,000
5,300,000
Investment in Oslo
5,300,000
Stockholders equity, January 1, 2014 = $2,500,000 + 4,000,000 1,200,000 = $5,300,000.
(R)
Land
Long-term debt
Goodwill
450,000
50,000
1,900,000
Investment in Oslo
2,160,000
Buildings, net
240,000
Revaluations at January 1, 2014 = original revaluations less writeoffs for 2006-2013.
(O)
Interest expense
Buildings, net
25,000
20,000
60,000
Long-term debt
Goodwill
25,000
20,000
60,000

11
E4.6
Consolidation after Several Years

Acquisition cost
Book value of Baker
Buildings
Goodwill
7,500,000
(5,000,000)
2,500,000
(1,000,000)
1,500,000
300,000
(40,000)
(100,000)
160,000

Bakers reported net income
Buildings $1,000,000/25
Equity in net income of Baker
Calculation of investment balance at December 31, 2013:
Investment in Baker, 12/31/06
Baker reported income, 2007-2012
Baker reported dividends, 2007-2012
Buildings ($1,000,000/25) x 6
Dividends, 2013
$ 7,500,000
1,300,000
(400,000)
(240,000)
8,160,000
160,000
(100,000)
$ 8,220,000

(C)
Equity in net income of Baker
160,000
Dividends Baker
Investment in Baker
(E)
Stockholders equityBaker, 1/1
100,000
60,000
5,900,000
Investment in Baker
5,900,000
Stockholders equity, January 1, 2013 = $5,000,000 + 1,300,000 400,000 = $5,900,000.

12
E4.6
continued
(R)
Buildings, net
Goodwill
760,000
1,500,000
Investment in Baker
2,260,000
(O)
40,000
100,000
Buildings, net
Goodwill
40,000
100,000
E4.7
Goodwill Impairment Losses
a.
Goodwill is not a standalone asset, but represents the value of above-average future
performance potential that cannot be assigned to identifiable assets such as property or
specific intangible assets. Because performance potential is related to business
operations, to measure impairments in its value it must be connected with a specific
business unit. In the case of Time Warner, as discussed in the text of Chapter 4, goodwill
is assigned to Networks as a business unit. The WB Network was one part of this
business unit, but did not comprise the entire unit.
b.
First, Time Warner has the option to perform a qualitative analysis to determine if it is
more likely than not that the business units book value exceeds its fair value. If so, the
fair value of the business unit is calculated and compared with its book value. If book
value exceeds fair value, we determine the amount of the impairment, if any, by
comparing the fair value of the goodwill with its book value. An impairment loss is
reported if book value exceeds fair value.
Since The WB Network was shut down, its future performance will no longer benefit
Time Warner, and the impairment charge is appropriate. Had the qualitative assessment
option been available in 2006, Time Warner would likely have bypassed this option due
to strong indicators that The WB Networks future cash flows were significantly
impaired.
c.
Time Warner has a 50% interest in The CW, so under U.S. GAAP it does not have a
controlling interest and reports its investment using the equity method. Time Warners
equity in the net income of The CW is reported as part of consolidated other income. The
investment balance is reported as part of consolidated assets. The CWs individual assets,
liabilities, revenues and expenses are not reported on the consolidated financial
statements.

13
E4.8
Projecting Consolidation Entries
a.
(R)
Land
Equipment, net
80,000
18,000
Investment in Samson
98,000
Inventory has been sold, and the equipment revaluation as of the start of the third year is
$30,000 (2 x 6,000) = $18,000.
(O)
6,000
Equipment, net
b.
(R)
Land
6,000
80,000
Investment in Samson
80,000
Inventory has been sold, and the equipment revaluation has been completely written off.
Therefore no eliminating entry (O) is appropriate.
c.
No eliminating entries are necessary to recognize or write off the revaluations, because
the assets requiring revaluation have been either sold or written off.

14
E4.9
Identifiable Intangibles and Goodwill, U.S. GAAP
Amortization expense for 2014:

Customer relationships
Favorable leaseholds
Total
$4,000,000/4
$8,000,000/5
$ 1,000,000
1,600,000
$2,600,000
Impairment testing identifiable intangibles:

Book value = $4,000,000 2 x ($4,000,000/4) = $2,000,000
Book value > Sum of undiscounted cash flows? $2,000,000 > $1,200,000: Yes
Impairment loss = $2,000,000 - $900,000 = $1,100,000
Book value = $8,000,000 1.5 x ($8,000,000/5) = $5,600,000
Book value > Sum of undiscounted cash flows? $5,600,000 < $6,000,000: No
Brand names
Book value = $18,000,000
Book value > Sum of discounted cash flows? $18,000,000 > $7,000,000: Yes
Impairment loss = $18,000,000 - $7,000,000 = $11,000,000
Impairment testing Goodwill:
Reporting Unit
Unit FV < BV?
Fair Value of GW
GW impairment loss
Asia
$400,000,000 > $300,000,000:

No
$350,000,000> $200,000,000:
No
$500,000,000< $600,000,000:
Yes
$500,000,000 385,000,000
= 115,000,000
$250,000,000 115,000,000 =
$135,000,000
South America
Europe
Summary:
Amortization expense identifiable intangibles
Impairment losses identifiable intangibles
Total
2,600,000
12,100,000
135,000,000
$149,700,000

15
E4.10 Identifiable Intangibles and Goodwill, IFRS

Total
$4,000,000/4
$8,000,000/5
$ 1,000,000
1,600,000
$2,600,000
Impairment testing identifiable intangibles:

Book value = $4,000,000 2 x ($4,000,000/4) = $2,000,000
Book value > Sum of discounted cash flows? $2,000,000 > $900,000: Yes
Impairment loss = $2,000,000 - $900,000 = $1,100,000
Book value = $8,000,000 1.5 x ($8,000,000/5) = $5,600,000
Impairment loss = $5,600,000 $4,400,000 = $1,200,000
Brand names
Book value = $18,000,000
Impairment loss = $18,000,000 - $7,000,000 = $11,000,000
Impairment testing Goodwill:
Reporting Unit
Unit FV < BV?
GW impairment loss
E. Asia
$150,000,000 < $200,000,000: Yes
$200,000,000 150,000 =
$50,000,000; impairment limited to full
goodwill balance of $40,000,000.
Indonesia
Brazil
Mediterranean
$120,000,000 > $100,000,000: No

$140,000,000 >$130,000,000: No
$190,000,000 < $220,000,000: Yes
Scandinavia
$230,000,000 < $300,000,000: Yes
Summary:
Amortization expense identifiable intangibles
Impairment losses identifiable intangibles
Total

16
$220,000,000 190,000,000 =
$30,000,000
$300,000,000 230,000,000 =
$70,000,000
2,600,000
13,300,000
140,000,000
$155,900,000
E4.11 Consolidated Income Statement

a.
(amounts in millions)
Sales $5,000 + 2,000
Cost of goods sold $3,000 + 800 + 160
Gross margin
Depreciation expense $500 + 140 (200/10)
Interest expense $100 + 60 + (100/5)
Other expenses $600 + 700
Total operating expenses
Net income
b.
$7,000
3,960
3,040
620
180
1,300
2,100
$ 940
Parson reports its own income of $800 million plus its equity in the income of Soaper of
$140 million. Equity in the income of Soaper is Soapers reported income adjusted for
write-offs of Soapers net asset revaluations. Consolidated income is Parsons and
Soapers reported revenues and expenses, with Soapers expenses adjusted for the
revaluation writeoffs. Parsons separately reported income and consolidated income
therefore report the same items, packaged differently.

17
E4.12 Amortization and Impairment Testing of Identifiable Intangible Assets

a.
Technology
Arroyo
WebEx
$15,000/5 x 9/12 =
$312,000/4 x 1/12 =
Customer Relationships
Arroyo
WebEx
$14,000/7 x 9/12 =
$153,000/6 x 1/12 =
2,250
6,500
1,500
2,125
Total amortization expense
$ 12,375
b.
Technology
Arroyo
WebEx
Customer
Relationships
Arroyo
WebEx
7/31/07
Book value>
Book
Undiscounted
value
cash flows?
$ 12,750 $12,750>$14,000? No
305,500 $305,500>$300,000? Yes
12,500 $12,500>$16,000? No
150,875 $150,875>$140,000? Yes
Impairment loss
--$305,500-250,000 = $ 55,500
-$150,875-100,000 =
Total impairment loss
-50,875
$106,375
c.
Arroyo
WebEx
7/31/07 book value

18
Technology
$ 12,750
250,000
$ 262,750
Customer
Relationships
$ 12,500
100,000
$ 112,500
E4.13 Consolidation Using Cost Method

Acquisition cost
Book value of Baker
Buildings
Goodwill
7,500,000
(5,000,000)
2,500,000
(1,000,000)
1,500,000
Calculation of adjustment to investment balance to convert it to complete equity method at

January 1, 2013:
Baker reported income, 2007-2012
Baker reported dividends, 2007-2012
Buildings ($1,000,000/25) x 6
Adjustment to Investment in Baker, 1/1/13
$ 1,300,000
(400,000)
(240,000)
$ 660,000

(A)
Investment in Baker
660,000
Stockholders equity Adam
(C)
Dividend income Adam
660,000
100,000
Dividends Baker
(E)
Stockholders equityBaker, 1/1
100,000
5,900,000
Investment in Baker
5,900,000
Stockholders equity, January 1, 2013 = $5,000,000 + 1,300,000 400,000 = $5,900,000.
(R)
Buildings, net
Goodwill
760,000
1,500,000
Investment in Baker
(O)
40,000
100,000
Buildings, net
Goodwill
2,260,000
40,000
100,000

19
PROBLEMS
P4.1
Condensed Consolidated Financial Statements One Year after Acquisition
a.

Santos reported net income
Inventory (1)
Plant assets $8,000,000/8
Patents $1,500,000/4
Long-term debt $1,000,000/10
Equity in net income of Santo
$ 5,000,000
(2,000,000)
(1,000,000)
(375,000)
100,000
(400,000)
$ 1,325,000
(1) Santos beginning inventory on its own books is $3,000,000 (= $5,200,000 +

4,000,000 6,200,000). Since Santos cost of goods sold is $4,000,000, its
beginning inventory is completely sold in 2014, and the revaluation is written off.
b.
Consolidation Working Paper, December 31, 2014
Trial Balances Taken From
Books
Dr (Cr)
Eliminations
Consolidated
Ponon
Santo
Cash and receivables

Inventory
Plant assets, net
Investment in Santo
$ 4,500,000
5,000,000
8,000,000
26,325,000
$ 3,100,000
5,200,000
12,000,000
--
Patents
Goodwill
Current liabilities
Long-term debt
Capital stock
Retained earnings, Jan. 1
Sales
Equity in income of Santos
Cost of goods sold
Depreciation and
amortization expense
Interest and other expenses
GW impairment loss
--(5,100,000)
(20,000,000)
(8,000,000)
(4,800,000)
(30,000,000)
(1,325,000)
18,000,000
2,000,000
--(2,000,000)
(3,300,000)
(6,000,000)
(4,000,000)
(13,200,000)
-4,000,000
3,200,000
5,400,000
-$
-0-
1,000,000
-$
-0-

20
Dr
Balances
Cr
(R) 2,000,000
(R) 8,000,000
(R) 1,500,000
(R) 4,500,000
(O-4) 100,000
(E) 6,000,000
(E) 4,000,000
2,000,000 (O-1)
1,000,000 (O-2)
1,325,000 (C)
10,000,000 (E)
15,000,000 (R)
375,000 (O-3)
400,000 (O-5)
1,000,000
(R)
(C) 1,325,000
(O-1) 2,000,000
(O-2) 1,000,000
(O-3) 375,000
(O-5) 400,000
$ 31,200,000
100,000 (O-4)
_______
$31,200,000
$ 7,600,000
10,200,000
27,000,000
-1,125,000
4,100,000
(7,100,000)
(24,200,000)
(8,000,000)
(4,800,000)
(43,200,000)
-24,000,000
6,575,000
6,300,000
400,000
$
-0-
P4.1
continued
c.
Consolidated Statement of Income and Retained Earnings For the Year 2014
Sales
$ 43,200,000
Costs of goods sold
(24,000,000)
Gross margin
19,200,000
Operating expenses:
Depreciation and amortization expense
$ 6,575,000
Interest and other expenses
6,300,000
400,000
(13,275,000)
Net income
5,925,000
Retained earnings, beginning balance
4,800,000
Retained earnings, ending balance
$ 10,725,000
Consolidated Balance Sheet, December 31, 2014
Assets
Inventory
Plant assets, net
Patents
Goodwill
Total assets
Liabilities and stockholders equity
Current liabilities
Long-term debt
Capital stock
Retained earnings
Total liabilities and stockholders equity
7,600,000
10,200,000
27,000,000
1,125,000
4,100,000
$ 50,025,000
$
7,100,000
24,200,000
8,000,000
10,725,000
$ 50,025,000

21
P4.2
Equity Method and Eliminating Entries Three Years after Acquisition
a.

Sunset Coasts reported net income for 2014
Plant assets ($1,000,000)/10
Identifiable intangibles $3,600,000/20
Equity in net income of Sunset Coast
$ 200,000
100,000
(180,000)
$ 120,000
Note: Identifiable intangibles at the date of acquisition are $2,100,000 + 500,000 +

1,000,000 = $3,600,000.
b.
Calculation of investment balance at December 31, 2014:

Investment in Sunset Coast, December 31, 2011
Sunset Coasts reported income, 2012-2014
Sunset Coasts reported dividends, 2012-2014 (50% of
reported income)
Plant assets [($1,000,000)/10] x 3
Identifiable intangibles ($3,600,000/20) x 3
$ 3,500,000
850,000
(425,000)
300,000
(540,000)
$ 3,685,000
Note to instructor: Under LIFO and increasing inventory, the acquisition date
revalued inventory is assumed to still be on hand.
c.

(C)
Equity in net income of Sunset
Coast
120,000
Dividends Sunset
Coast (.5 x $200,000)
Investment in Sunset
Coast

22
100,000
20,000
P4.2
continued
(E)
Stockholders equitySunset
Coast, 1/1
1,725,000
Coast
1,725,000
Sunset Coasts stockholders equity, December 31, 2011 = $1,400,000 (acquisition cost
$3,500,000 less excess over book value $2,100,000).
Sunset Coasts stockholders equity, January 1, 2014 = $1,400,000 + (1 - .5)(850,000
200,000) = $1,725,000.
(R)
3,240,000
Inventory
500,000
Plant assets, net
800,000
Coast
1,940,000
Revaluations at January 1, 2014 = original revaluations less writeoffs for 2012 and 2013.
(O)
Plant assets, net
100,000
180,000
d.
100,000
180,000
Puffins income from its own operations plus equity in net income of Sunset Coast =
consolidated net income: $600,000 + $120,000 = $720,000.

23
P4.3
Consolidation at End of First Year, Preacquisition Contingency
a.

Sanders reported net income for 2013
Inventory $80,000 x 60%
Equity in net income of Sanders
Perkinsentries for 2013:
Investment in Sanders
Merger expenses
Restructuring expenses
$ 500,000
(48,000)
(20,000)
$ 432,000
4,000,000
50,000
100,000
Cash
4,150,000
432,000

Sanders
Cash
432,000
150,000
b.
150,000

(C)
Sanders
432,000
Dividends Sanders
(E)
Stockholders equity
Sanders, 1/1
2,200,000

24
150,000
282,000
2,200,000
P4.3
Consolidation at End of First Year, Preacquisition Contingency

(R)
Inventory
Equipment, net
In-process research and
development
Goodwill
80,000
200,000
300,000
1,305,000
Lawsuit liability
85,000
1,800,000
Note: Because the change in the lawsuit liability occurs within the measurement period,
the increased liability value increases acquisition date goodwill.
(O)
Cost of goods sold
48,000
20,000
Inventory
Equipment, net
P4.4
48,000
20,000
Consolidated Balance Sheet Working Paper, Bargain Purchase (see related P3.4)

a.

Saxons reported net income for 2013 ($10,000 + 10 8,000 40 25 1,600)
Inventory
Marketable securities
Buildings and equipment $300/20
Long-term debt $110/5
Equity in net income of Saxon
$ 345
(100)
50
(15)
(22)
$ 258
Calculation of Investment balance, December 31, 2013:

Investment balance, December 31, 2012 (1)
Equity in net income for 2013
Dividends for 2013
Investment balance, December 31, 2013
(1)
$2,000
258
(100)
$2,158
Paxon acquired Saxon for $1,800, but there is a bargain gain that increases the
investment balance by $200, as follows:

25
P4.4
continued
Calculation of gain on acquisition:

Acquisition cost
Book value ($100 + 350 + 845)
Excess of fair value over book value:
Inventory
Land
Buildings and equipment
Long-term debt (discount)
Gain on acquisition
$ 1,800
(1,295)
505
$ 100
(50)
245
300
110
$
705
200
Therefore Paxons entry to record the acquisition was:

Investment in Saxon
2,000
Cash
Gain on acquisition
1,800
200
b.
Consolidation Working Paper, December 31, 2013
Trial Balances Taken
From Books
Dr (Cr)
Inventory
Investment in Saxon
Land
Buildings and equipment, net
Current liabilities
Long-term debt
Common stock
Additional paid-in capital
Retained earnings, Jan. 1
Dividends
Sales revenue
Equity in income of Saxon
Gain on sale of securities
Cost of goods sold
Interest expense
Other operating expenses

26
Paxon
Saxon
$ 3,100
2,260
-2,158
650
3,600
(2,020)
(5,000)
(500)
(1,200)
(2,610)
500
(30,000)
(258)
-26,000
300
250
2,770
$
-0-
800
940
---
300
1,150
(1,200)
(450)
(100)
(350)
(845)
100
(10,000)
-(10)
8,000
40
25
1,600
$
-0-
Eliminations
Dr
(R) 100
(O-2) 50
Consolidated
Balances
Cr
100 (O-1)
50 (R)
158 (C)
1,295 (E)
705 (R)
(R) 245
(R) 300
15 (O-3)
(R) 110
(E) 100
(E) 350
(E) 845
22 (O-4)
100
(C)
(C) 258
50 (O-2)
(O-1) 100
(O-3) 15
(O-4) 22
______
$
2,495
_______
2,495
$ 3,900
3,200
--1,195
5,035
(3,220)
(5,362)
(500)
(1,200)
(2,610)
500
(40,000)
-(60)
34,100
355
297
4,370
$
-0-
P4.4
continued
c.
Consolidated Statement of Income and Retained Earnings For the Year 2013
Sales
$ 40,000
Costs of goods sold
(34,100)
Gross margin
5,900
Operating expenses:
$ 355
Interest expense
297
4,370
(5,022)
Income before other gains
878
Gain on sale of securities
60
Net income
938
Retained earnings, January 1
2,610
Dividends
(500)
Retained earnings, December 31
$ 3,048
Consolidated Balance Sheet, December 31, 2013
Assets
Inventory
Land
Buildings and equipment, net
Total assets
Current liabilities
Long-term debt
Common stock
Retained earnings
3,900
3,200
1,195
5,035
$ 13,330
$
3,220
5,362
500
1,200
3,048
$ 13,330

27
P4.5
Goodwill Allocation and Impairment
a.
Identifiable assets acquired
Liabilities assumed
Net identifiable assets acquired
Total acquisition cost
Total goodwill
$ 60,000,000
(25,000,000)
35,000,000
75,000,000
$ 40,000,000
Allocation to business units:

Identifiable assets acquired
Liabilities assumed
Net assets assigned
Unit X
$ 32,000,000
(18,000,000)
$ 14,000,000
Unit Y
$20,000,000
(6,000,000)
$14,000,000
Unit Z
$ 8,000,000
(1,000,000)
$ 7,000,000
Total
$ 60,000,000
(25,000,000)
$ 35,000,000
Unit Y
$ 30,000,000
Unit Z
Unit J
Fair value of reporting unit
Unit X
$ 50,000,000
$20,000,000
Less: Net assets assigned

Increase in fair value
Tentative allocation of
goodwill
Total tentative allocation is
$80,000,000; goodwill to be
assigned is $40,000,000.
50% reduction
Allocation of goodwill

28
(14,000,000)
__ N/A___
(14,000,000)
___N/A___
$
15,000,000
(7,000,000)
___N/A___
36,000,000
16,000,000
8,000,000
20,000,000
(18,000,000)
$ 18,000,000
(8,000,000)
$ 8,000,000
(4,000,000)
$ 4,000,000
(10,000,000)
$10,000,000
P4.5
continued
b.
Step 1 of impairment test: Compare the fair value of each reporting unit at December 31,
2014 with its book value at that date.
Fair value at
December 31, 2014
Book value at
December 31, 2014
Difference
Preliminary
conclusion
Unit X
Unit Y
Unit Z
Unit J
$30,000,000
$ 15,000,000
$ 12,000,000
$ 75,000,000
34,000,000
$( 4,000,000)
May be
impaired
20,000,000
$(5,000,000)
May be
impaired
10,000,000
$2,000,000
Not impaired
72,000,000
$(2,000,000)
Not impaired
Step 2 of the impairment test: For those reporting units where goodwill may be impaired,
calculate the implied fair value of goodwill at December 31, 2014 and compare to the
book value of goodwill at that date.
Fair value of identifiable net assets at December
31, 2014
Implied value of goodwill
Difference
Conclusion
Unit X
$ 30,000,000
Unit Y
$ 15,000,000
23,000,000
7,000,000
18,000,000
$ (11,000,000)
Goodwill is
impaired
6,000,000
9,000,000
8,000,000
$ 1,000,000
Goodwill is
not impaired
Goodwill is impaired for Reporting Unit X. An $11,000,000 goodwill impairment loss

should be recorded at December 31, 2014.

29
P4.6
Intangible Assets and Goodwill: Amortization and Impairment
2013 amortization expense:

Customer lists $500,000/5
Developed technology $800,000/10
Total
$ 100,000
80,000
$ 180,000
2013 impairment test for identifiable intangibles:
Original book value

Less: amortization
2011
2012
2013
Book value, December 31, 2013
Customer
lists
$ 500,000
Developed
technology
$ 800,000
Internet
domain name
$ 1,300,000
(100,000)
(100,000)
(100,000)
$ 200,000
(80,000)
(80,000)
(80,000)
560,000
________
$ 1,300,000
Step 1 of impairment test: To determine whether impairment has occurred, compare the
undiscounted future cash flows from the asset to its book value.
Future undiscounted cash flows

Book value
Difference
Conclusion
Customer
lists
$ 250,000
200,000
$ 50,000
Not impaired
Developed
technology
$ 500,000
560,000
$ (60,000)
Impaired
Internet
domain name
$ 1,000,000
1,300,000
$ (300,000)
Impaired
Step 2 of impairment test: For intangibles that are deemed impaired in Step 1, calculate amount
of impairment as the difference between discounted cash flows and book value.
Future discounted cash flows

Book value
Impairment

30
Developed
technology
$ 420,000
560,000
$ 140,000
Internet
domain name
$ 750,000
1,300,000
$ 550,000
P4.6
continued
2013 goodwill impairment test:

Step 1 of impairment test: compare fair value of reporting unit at December 31, 2013 to the book
value of the unit at that date.
Book value
Difference
$17,000,000
18,500,000
$(1,500,000)
Conclusion: Goodwill may be impaired.

Step 2 of impairment test: Calculate the implied fair value of goodwill at December 31, 2013 and
compare to the book value at that date.
Fair value of identifiable net assets
Implied fair value of goodwill
Difference
$ 17,000,000
14,200,000
2,800,000
6,200,000
$ (3,400,000)
Conclusion: Goodwill impairment loss is $3,400,000.

Summary:
Customer lists
Developed technology
Impairment write-offs for 2013:
Internet domain name
Goodwill
Total expense for 2013
100,000
80,000
140,000
550,000
3,400,000
180,000
4,090,000
$ 4,270,000

31
P4.7
Consolidated Balance Sheet Working Paper, Three Years after Acquisition (see
related P3.2)
a.
Calculation of equity in net income for fiscal 2011, 2012, and 2013:
GOCs reported net income (loss)
Property, plant and equipment $(60)/20
Patents and trademarks $10/5
Long-term debt $(3)/3
Advanced technology $5/5
Customer lists impairment loss
Equity in net income of GOC
2011
$ 15
2012
$ (2)
2013
$ 12 (1)
3
(2)
1
(1)
3
(2)
1
(1)
(2)
_(3)
$ (6)
3
(2)
1
(1)
(4)
_(2)
$ 7
_(2)
$ 14
(1) $12 = $900 800 88

Calculation of Investment balance, June 30, 2013:
Investment balance, June 30, 2010 (adjusted to remove earnings contingency)
Equity in net income for fiscal 2011
Increase in GOCs AOCI for fiscal 2011-2013 (= $5 3)
Investment balance, June 30, 2013

32
$ 110
14
(6)
7
__2
$ 127
P4.7
continued
b.
Consolidation Working Paper, June 30, 2013
Trial Balances
Taken From Books
Dr. (Cr.)
Eliminations
Consolidated
ITI
Current assets
Property, plant and
equipment, net
Identifiable intangible assets
Investment in GOC
Goodwill (1)
Current liabilities
Long-term liabilities
Common stock
Retained earnings, July 1
Accumulated other
comprehensive income
Treasury stock
Sales revenue
Equity in income of Saxon
Cost of goods sold
$
232
600
GOC
$
Dr
12
140
(R) 5
(O-1) 3
1,100
30
(R) 6
(R) 3
(R) 23
127
--
-(175)
(1,125)
(22)
(580)
(118)
-(10)
(105)
(4)
(60)
12
(20)
8
(2,000)
(7)
1,400
-580
(5)
2
(900)
-800
-88
_____
_____
-0- $
-0-
Balances
$
249
689
54 (R)
2 (O-2)
1 (O-4)
4 (O-5)
7 (C)
55 (E)
65 (R)
2 (O-6)
(R) 83
(O-3) 1
(E) 4
(E) 60
1,155
-81
(185)
(1,230)
(22)
(580)
(118)
1 (R)
12 (E)
(E) 5
(20)
8
(2,900)
-2,200
2
2 (E)
(C) 7
(O-6) 2
(O-2) 2
(O-4) 1
(O-5) 4
$ 209
(1)
Acquisition-date goodwill is calculated as follows:
Acquisition cost (adjusted)
GOCs book value
Excess of fair value over book value:
Inventory
Property, plant and equipment
Patents and trademarks
Advanced technology
Customer lists
Long-term debt
Goodwill
Cr
3 (O-1)
1 (O-3)
_______
$ 209
____671
-0-
$ 110
(40)
70
$
5
(60)
10
5
25
(3)
$
_(18)
88

33
P4.7
continued
c.
Consolidated Statement of Income and Retained Earnings For Fiscal 2013
Sales revenue
$ 2,900
Costs of goods sold
(2,200)
Gross margin
700
Operating expenses:
$
2
_671
__673
Net income
27
Retained earnings, beginning balance
__118
Retained earnings, ending balance
$ 145
Consolidated Balance Sheet, June 30, 2013
Assets
Current assets
Property, plant and equipment, net
Identifiable intangible assets
Goodwill
Total assets
Current liabilities
Long-term liabilities
Common stock
Retained earnings
Accumulated other comprehensive income
Treasury stock

34
$
249
689
1,155
__81
$ 2,174
$
185
1,230
22
580
145
20
__(8)
$ 2,174
P4.8
Working Paper Eliminating Entries, Partial Year Consolidation (see related P3.3)
(all numbers in millions)
a.
Calculation of Equity in net income for 2003:

Pharmacias reported net income
Inventory
Property, plant and equipment [$(317)/20] x [8.5/12]
In-process research and development
Developed technology rights $31,596/11 x (8.5/12)
Long-term debt
Other assets $(15,606)/10 x (8.5/12)
Equity in net income of Pharmacia
b.
5,000
(2,939)
11
(716)
(2,035)
12
1,105
$
438

(C)
Equity in net income of Pharmacia
438
Investment in Pharmacia
(E)
Stockholders equityPharmacia,
4/16/03
438
7,236
(R)
Inventory
Long-term investments
In-process R&D
Developed technology rights
Goodwill
2,939
40
5,052
37,066
21,304
Property, plant and
equipment
Long-term debt
Other assets
7,236
317
1,841
15,606
48,637

35
P4.8
continued
(O)
Cost of goods sold
Property, plant and equipment
Impairment loss
Long-term debt
Other assets
2,939
11
716
2,035
12
1,105
Inventory
development
rights
Interest expense
P4.9
Goodwill Impairment Testing, IFRS and U.S. GAAP
a.
BPs 2010 annual report states the following:
2,939
11
716
2,035
12
1,105
The future cash flows are adjusted for risks specific to the cash-generating unit and are discounted using a
pre-tax discount rate. The discount rate is derived from the groups post-tax weighted average cost of
capital and is adjusted where applicable to take into account any specific risk relating to the country where
the cash-generating unit is located.
Cash flows are adjusted for specific risks and the applicable tax effects before they are
discounted, thereby taking into consideration differences in the uncertainty of the
business environment. Most likely the cash flows of Exploration and Production segment
CGUs are more uncertain than those of Refining and Marketing, although the two
segments are closely related.
If the cash flows were not adjusted, the discount rate should be adjusted to reflect
differences in risk.

36
P4.9
continued
b.
Exploration and Production

CGU
UK
US
Rest of world
Total
Value in use
$ 9,000
35,000
2,500
$ 46,500
Book value
$ 1,114
6,144
2,840
$ 10,098
Impairment loss
None
None
$ 340
Refining and Marketing

CGU
Rhine FVC
Lubricants
Other
Total
Value in use
$ 13,000
6,000
4,000
$ 23,000
Book value
Impairment loss
$ 1,557
None
1,938
None
4,880
$ 880
$ 8,375
Total goodwill impairment loss is $340 + 880 = $1,220

c.
$2,840 2,140 = $700, suggesting a GW impairment loss of that amount. However, total
goodwill allocated to the Rest of World CGU is $630. Therefore, the goodwill
impairment loss is $630, and other assets of the CGU would be written down, based on
appropriate impairment tests.
d.
U.S. GAAP requires goodwill to be assigned to reporting units, in this case Exploration
and Production, and Refining and Marketing. When testing for impairment, BP has the
option to perform a qualitative assessment of each reporting unit, using economic,
financial, and strategic factors, to determine if it is more likely than not that the units
book value exceeds its fair value. If so, the reporting units goodwill is evaluated using a
two-step test. Goodwill is tested for impairment only if the estimated fair value of the
reporting unit is in fact less than its book value. Because fair value is generally
calculated using discounted cash flows, we assume it can be approximated by value-inuse. For both reporting units above, value in use significantly exceeds book value, so no
impairment loss is reported, whether BP uses or bypasses the qualitative test.
Because reporting units aggregate CGUs, it is likely that CGUs with book value greater
than value in use will be offset by those with a value in use that is greater than book value
when applying the first step for impairment testing under U.S. GAAP.

37
P4.10 Consolidation One and Two Years after Acquisition

a.
The investment cost amounts to $598,000,000 [= ($590,000,000 $15,000,000) +

$23,000,000], and the $248,000,000 excess of acquisition cost over book value
($598,000,000 $350,000,000) is allocated as follows, with goodwill being the residual
at the bottom:
Allocation to identifiable items:
Inventories
Identifiable intangibles (5-year life)
In-process research and development (IPRD)
Plant assets (20-year life, straight-line)
Goodwill (unallocated balance)
b.
$ 248,000,000
(30,000,000)
(40,000,000)
(60,000,000)
(50,000,000)
$ 68,000,000
2007 equity income accrual:

Essexs reported net income
Revaluation write-offs:
FIFO inventory sold (.4 X $30,000,000)
Amortization of identifiable intangibles ($40,000,000/5)
Depreciation of plant assets ($50,000,000/20)
Goodwill impairment
$ 140,000,000
(12,000,000)
(8,000,000)
(2,500,000)
(15,000,000)
$ 102,500,000
December 31, 2007 working paper eliminations:

(C)
102,500,000
Dividends Essex (.55 x
$140,000,000)
Investment in Essex
(E)
Stockholders equity Essex,
1/25/07
350,000,000
Investment in Essex

38
77,000,000
25,500,000
350,000,000
P4.10 continued
(R)
Inventories
development
Plant assets
Goodwill
30,000,000
40,000,000
60,000,000
50,000,000
68,000,000
Investment in Essex
248,000,000
(O)
Cost of goods sold
12,000,000
8,000,000
2,500,000
15,000,000
Inventories
Accumulated
depreciation
Goodwill
c.
12,000,000
8,000,000
2,500,000
15,000,000
2008 equity income accrual:

Essexs reported net income
Revaluation write-offs:
Amortization of identifiable intangibles ($40,000,000/5)
Depreciation of plant assets ($50,000,000/20)
IPRD impairment
$160,000,000
(8,000,000)
(2,500,000)
(20,000,000)
$129,500,000
December 31, 2008, working paper eliminations:

(C)
129,500,000
Dividends Essex (.55 x
$160,000,000)
Investment in Essex
88,000,000
41,500,000

39
P4.10 continued
(E)
Stockholders equity Essex,
1/1/08 (1)
(1)
413,000,000
Investment in Essex
$350,000,000 + $140,000,000 - $77,000,000
(R)
Inventories (.6 x
$30,000,000)
development
Plant assets
Goodwill
413,000,000
18,000,000
32,000,000
60,000,000
50,000,000
53,000,000
Accum. depreciation
Investment in Essex
(O)
IPRD impairment loss
8,000,000
2,500,000
20,000,000
Accumulated
depreciation
IPRD

40
2,500,000
210,500,000
8,000,000
2,500,000
20,000,000
P4.11 Intangibles under IFRS

a.
Whereas the double-declining balance rate is twice the straight-line rate, 150% declining
balance is 1.5 x 10% straight-line rate, or 15%. Following the conventional decliningbalance calculations, we have this amount of amortization expense for 2013, the second
year after acquisition:
Amortization expense = .15 x [200 million (.15 x 200 million)] = 25.5 million
b.
At December 31, 2012, the book value is 36 million after 2012 amortization of 4
million, and the market value of these intangibles is 45 million.
December 31, 2012 entries are (all amounts in millions):
4
Intangible assets
Intangible assets
9
Revaluation surplus (OCI)
December 31, 2013, entries are:

5
Intangible assets
45 million/9 = 5 million
Revaluation surplus (OCI)
Loss (income)
9
1
Intangible assets
10
At this point the ending book value is 30 million (= 40 4 + 9 5 10], equal to the
market value on that date.
c.
IFRS impairment loss = book value greater of (value-in-use, 1,800 million; market
value, 1,500 million) = 2,000 1,800 = 200 million.
U.S. GAAP impairment loss = 0 (sum of undiscounted cash flows 2,500 million > book
value, 2,000 million, indicating no impairment).
The two-step test in U.S GAAP removes some potential impairments from consideration
because of the book value: undiscounted cash flows screen. IFRS directly compares fair
value (market value or value-in-use, whichever is higher) with book value. Since fair
value is lower than the sum of the undiscounted cash flows, IFRS will likely recognize
more impairment losses over time than U.S. GAAP.

41
P4.12 Consolidation in First Year, Intangible Asset Issues

(all dollar amounts in millions)
a.
Net Assets = Assets - Liabilities
$26,900
= $(20,800 + 9,400 + 4,800) Liabilities
Liabilities = $35,000 $26,900
Liabilities = $8,100
b.
Going by the book, the question is simply whether useful lives can be reasonably
estimated or whether the intangible has an obviously very long indeterminate (indefinite)
life. Many cases will be clear-cut and can be justified to the auditors but others will be in
gray areas such that the desired reporting result will call forth the case justifying the
classification of the intangible one way or another.
In these gray areas, management may elect to minimize periodic amortization charges
against earnings and take their chances on the somewhat random and very subjective
impairment tests. To the extent possible, management would likely classify items and
load cost in the indefinite-lived category to minimize the effect on earnings.
c.
With impairment charges being part of income from continuing operations, companies
may seek to lower the probability that they will have to recognize goodwill impairment
charges. The subjectivity inherent in valuing the reporting units to which the goodwill is
assignedcash flow forecasts and discount rate selectionsfacilitates decisions to load
goodwill onto reporting units that are less-likely impairment candidates, i.e., units with
fair value significantly above book value.
d.
Revaluation of limited-life intangibles is $2,000 (= $3,000 $1,000).

Amortization of this revaluation for 2007 = $2,000/15 x 9/12 = $100.
Equity method income = $1,000 $100 = $900
Consolidation working paper entries:
(C)
Equity income
900
DividendsCaremark
Investment in Caremark
(E)
Stockholders equityCaremark (1)
(1)
1,700
$26,900 $20,800 ($9,400 $5,000)

42
550
350
1,700
P4.12 continued
(R)
Goodwill
Identifiable intangibles, limited life
Identifiable intangibles, indefinite life
(2)
20,800
2,000
2,400
(2)
25,200
$6,400 $4,000
(O)
100
Identifiable intangibles,
limited life
100
P4.13 Cost Method and Eliminating Entries Three Years after Acquisition
Calculation of Investment balance at January 1, 2014:
Sunset Coasts reported income, 2012-2013
Sunset Coasts reported dividends, 2012-2013 (50% of
reported income)
Plant assets [($1,000,000)/10] x 2
Identifiable intangibles ($3,600,000/20) x 2
Investment in Sunset Coast, January 1, 2014
$ 3,500,000
650,000
(325,000)
200,000
(360,000)
$ 3,665,000
Note to instructor: Under LIFO and increasing inventory, the acquisition date
revalued inventory is assumed to still be on hand.
(A)
Investment in Sunset Coast
3,665,000
Stockholders equity
Puffin, 1/1
(C)
Dividend income
100,000
Dividends Sunset
Coast (.5 x $200,000)
3,665,000
100,000

43
P4.13 Cost Method and Eliminating Entries Three Years after Acquisition
(E)
Stockholders equitySunset
Coast, 1/1
1,725,000
Coast
1,725,000
Sunset Coasts stockholders equity, December 31, 2011 = $1,400,000 (acquisition cost
$3,500,000 less excess over book value $2,100,000).
Sunset Coasts stockholders equity, January 1, 2014 = $1,400,000 + (1 - .5)(850,000 200,000)
= $1,725,000.
(R)
3,240,000
Inventory
500,000
Plant assets, net
800,000
Coast
1,940,000
Revaluations at January 1, 2014 = original revaluations less writeoffs for 2012 and 2013.
(O)
Plant assets, net
100,000
180,000

44
100,000
180,000

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CHAPTER 4

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

$500,000 100,000 = $400,000.

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Equity Method Accounting

Calculation of Equity in Net Income:

Equity in net income of

Equity Method Income and Working Paper Eliminations

(all amounts in millions)

Investment balance, 1/1/14

Sabers stockholders equity, 1/1/13

Sabers 2014 net income

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Plant assets, net

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Consolidation at End of First Year

The acquisition entry is as follows:

Calculation of 2013 equity in net income:

Calculation of goodwill is as follows:

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Eliminating Entries after First and Second Years

Calculation of equity in net income for 2014:

Safecos reported net income

Peerlesss entries for 2014:

Calculation of goodwill is as follows:

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Calculation of equity in net income for 2015:

Peerlesss equity method entries for 2015:

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Equity Method, Eliminating Entries, Several Years after Acquisition

Calculation of total goodwill is as follows:

Calculation of Equity in net income for 2014:

Calculation of Investment in Oslo, 12/31/14

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Consolidation working paper eliminating entries for 2014:

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Consolidation after Several Years

Calculation of total goodwill is as follows:

Calculation of equity in net income for 2013:

Consolidation working paper eliminating entries for 2013:

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Goodwill Impairment Losses

Solutions Manual, Chapter 4

Cambridge Business Publishers, 2013

Projecting Consolidation Entries

Cambridge Business Publishers, 2013

Advanced Accounting, 2nd Edition

Identifiable Intangibles and Goodwill, U.S. GAAP