Codification to Research a Complex Accounting Issue: The Case of Goodwill Impairment at Jackson Enterprises
Note: The two-step impairment test was US GAAP at December 31, 2014,
which is the key date for this case study. The FASB has since issued
Accounting Standards Update (ASU) 2017-04, which eliminate Step 2 of the
impairment test. However, for answer the requirements of this case
study below, please perform the two-step impairment text which was US
GAAP at December 31, 2014. For your information, today, the
quantitative impairment test now includes only one step, which is the
comparison of the carrying value to the fair market value of the
reporting unit, with the difference representing the recognized goodwill
impairment. While the quantitative aspect of the test has changed
under ASU 2017-04, the FASB did not remove the preliminary, qualitative
assessment option to determine the appropriateness of the quantitative
Read the Case of Goodwill Impairment at Jackson Enterprises (link below). After reading the case study, answer the questions provided.
Financial reporting personnel at Jackson Enterprises (JE) are in the
process of completing year-end activities, including necessary adjusting
of entries to the consolidated financial statements. While JE has not
previously believed it necessary to adjust its recognized goodwill from
the Dynamic and ZD acquisitions, the valuation of goodwill is,
nonetheless, a prominent concern in the closing process. Assume you are
asked to research the financial statement issues surrounding the
goodwill recorded for the Dynamic and ZD subsidiaries.
Prepare a paper to address the questions below. In memorandum format,
detail the issues involved, the judgements you made based on
authoritative literature, and your recommendations for the direction of
the goodwill valuation as it relates to Dynamic and ZA. In other words,
does the evidence suggest further action is required in determining the
appropriate valuation of good will? If so, what steps need to be taken?
Note: Remember that textbooks are not considered authoritative guidance in accounting research.
Identify and cite the relevant topics/subtopics from the FASB Accounting Standards Codification for this case.
Identify the specific accounting issue that you believe needs
to be initially addressed for JE’s consideration of goodwill
regarding both Dynamic and ZD.
What does the qualitative evidence from the case indicate
about whether JE should perform the two-step impairment test? In
your response, identify specific factors discussed in the Codification and relate them to the information provided to you in the case.
Beyond the assessment of qualitative factors, what other
evidence should be considered for the purpose of the analysis? What
does this information suggest? For Dynamic, what do you think is
the most appropriate fair value amount to use in assessing the fair
value of this reporting unit? Explain. Why is this important?
Based upon the information provided above, should Dynamic and
ZD be combined or separated for the purposes of the goodwill
analysis? Explain. Why is this important?
Based upon your initial analysis, do you think the $200
million goodwill balance (i.e., the $150 million for Dynamic and
the $50 million for ZD) is the appropriate valuation for goodwill
on the December 31, 2014 balance sheet of JE?