Exercise 1214 Part Level Submission Presented below is net a

Exercise 12-14 (Part Level Submission) Presented below is net asset information related to the Metlock Division of Santana, Inc. METLOCK DIVISION NET ASSETS AS OF DECEMBER 31, 2017 (IN MILLIONS) Cash Accounts receivable Property, plant, and equipment (net) Goodwill Less: Notes payable $65 214 2,609 215 (2,604) S499 Net assets The purpose of the Metlock 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 $420 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 tities are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Solution

Fair value 335000000 Carrying Amount Net of goodwill (499-215) 284000000 Implied goods Will 51000000 Carriying Value of goodwill 215000000 Impairment Loss (215-51) 164000000 The Fair value of the reporting units is below its carrying value. Therefore an impairment has occurred DR CR Loss on Impairment 164000000 Goodwill 164000000