Business Articles on Market Forces

'When Public Health Meets Market Forces'

 and 

'John Rapanos and the Kitchen Sink'

The main goals of the articles “When Public Health Meets Market Forces “and “John Rapanos and the Kitchen Sink” are both simply to enforce what is right. However, the idea of what is considered right and wrong have two major components in which these two articles focus on. The legal justification of right is the main focus of the Public Health article while the ethical justification of right is strongly voiced in the Kitchen Sink article.

The fundamental idea reflected by the Public Health article is to stress the importance of the fundamental commerce clause’s ability to protect “all interstate and intrastate waters and bodies of land.” If this case is lost, the foundation of laws such as the Clean Water Act will began to weaken—thus, the security of public welfare may become unstable. The voice of this article seems to imply that if this single instant of weakness is shown in regards to the commerce clause will definitely reverse the progress made towards the stability of the environment.

In respect to the Tragedy of the Commons, the argument of the Public Health article is best described by the Pollution section. According to this section, society is “locked into a system of fouling our own nest”. This view reflect the actions that caused such laws to be established—if left to only the population’s control, eventually our environment would be primarily composed of filth. However, this article does seem to shy away from the “How to Legislate Temperance” section of the Tragedy of Commons—its focus is solely directed to the benefit of the environment, regardless of any ethical side effects of the population.

The fundamental idea reflected by the Kitchen Sink article is the extent of the commerce clause seems to exceed ethical values. Therefore, the authority of the commerce clause is unconstitutional. The article exposes the power of the commerce clause by describing it as “a limitless authority to regulate virtually anything anywhere at any time: everything up to and including, literally, the kitchen sink.” At first, this accusation seems farfetched but within the commerce clause, federal bureaucrats extend authority by “writing laws in the vaguest terms, and interpreting them as broadly as possible”.

In respect to the Tragedy of the Commons, the argument of the Kitchen Sink article is captured by the “How to Legislate Temperance” section. The location of his accused pollution to the environment is approximately 20mi from navigable waters and therefore “does not harm the general public under frontier conditions, because there is no public”. However, this article seems to ignore the invisible hand concept under the Tragedy of the Commons—if this case were to be in favor of Rapanos, it is highly probable that others would begin to use this method to supply their own personal gains.

Personally, I side with the simple property rights interpretation of legal wetlands regulation for two reasons. First, the article does not include vague details or overly complex themes that deviate from the central topic of the article. Secondly, I believe that the power of the commerce clause in this situation has too much authority. I say this because the definition of the law is far too broad; however, I confess that the commerce law is indeed needed, but there is a vast amount of room for improvement.

In regards to acceptable legal scope of the regulation of water bodies/wetlands, Justice Kennedy sits as the mediator. In an attempt to help alleviate the situation, “Justice Kennedy was willing to give the agency a chance to show the importance of its intervention”. Therefore, it was the responsibility of the agency to prove if the environmental impact caused by John Rapanos was indeed detrimental to the stability of the environment. In regards to the Tragedy of the Commons, Justice Kennedy serves as a prime example of “[w]ho shall watch the watchers themselves”—his actions “nonetheless places a high burden of proof on the regulators”.

Concert Report of LTCA Janus Trio

Concert Report of LTCA Janus Trio

For the first time in my life, I attended the concert, “LTCA Janus Trio”, at 7:30 pm on Thursday, January 17, 2013, at Howard Auditorium at Louisiana Tech University. The concert lasted for about one and half hour. The auditorium was not crowded as I expected because it was the first concert of the quarter. Throughout the concert, there were two ladies, Nuiko Wadden and Beth Meyers, one playing Harp and other playing viola on the stage. Also, there was another lady, Amanda Baker, standing with flute in her hand. They all wore black dresses and were professional musicians.

The concert started with the introductory piece, “Eisteddfod”. This music was from the second half of the twentieth century. The composer of this piece was Jan Bach. In this music, a set of theme and variations were based on the Welsh folk tune Ymadawiad y Brenin. In this brilliantly composed piece, each player demonstrated individual virtuosity in the variations and cadenzas. This was done by culminating in the dramatic presentation of the theme, which was uniquely placed at the end of the piece. The texture of the music was polyphonic with somewhere homophonic in the middle. Similarly, the performance mediums of this piece were flute, viola and harp. I feel that this piece gave really great start to the concert. After this piece, the flute player greeted the audiences and explained briefly about the next piece, “Keymaster”.

This piece is also from second half of the twentieth century. The composer of this piece was Caleb Burhans. It was composed in 2005 and premiered in 2006. This piece referred both DJ laptop compositions one could find in a techno hall as it does the minimalist concert music in New York City’s downtown sound. Therefore, basically, the piece was the music of New York City downtown. The performance mediums were flute, alto-flute, viola, and harp. In this piece, the ensemble type can work for two to six players. In addition to this, the texture was dominantly polyphonic throughout the piece. This was really mind blowing piece of music. The concert was then continued with another piece of beautiful piece, “Formas de Arena”.

The composer of this music was Martin Matalon and it was also from the second half of the twentieth century. It consists of four different types of linked movements. The first, which is elaborated round the alto flute and is made up of an ethereal web of great transparency. The musical material in this piece is attributed to the flute, which gives rise to rapid comings-and-goings. The instruments give themselves over to constant, mutual reinterpretation, which goes from literal imitation and echo to the freest allusion and the play of a distorting mirror. This reflection is muddled by the innumerable color changes. The conception of the second movement was simpler. 

The overhead viola-the score is marked ‘saturated sound’-apears in a clanking noise. Once the ‘kinetic’ energy is dissipated, the rhythmic influx is harnessed in the following movement by the three beats. Of a more ethereal nature, the final movement I feel that it showed the harp off to advantage, establishing a gentle, haunting rocking while forming very free, evanescent figures. After this piece, there was intermission of about 10 minutes. Then, the concert proceeded with the last two amazing pieces, “Gossamer Albatross” and “Sonata pour flute, ato et harpe”. The first one is from the second half of the twentieth century, whose composer was Cameron Britt. In this piece flute and viola lines emerged from the motoric harp part as the piece begins and then the melodic lines were taken on lives of their own. Also instrumental roles shift as the piece steers its way through different sections, finally receding from the view. The other one was from the Romantic period and its composer was Claude Debussy. This piece is the unique combination of something blown, something bowed and something plucked. The performance medium of both of these pieces are flute, alto flute, viola and harp.

I enjoyed the concert and was really surprised at how smoothly the organization and the performance took place. “The LTCA Janus Trio” concert for was an enjoyable evening full of great music and intellectually stimulating experiences of music that I would not have listened to if not for this assignment. Diversification is an important lesson to learn when viewing music because all music has roots from another genre and recognizing this makes you more diversified as an individual.

Certification Form for New Bachelors or Masters Degree Programs

Certification Form for New Bachelor’s and Master’s Programs

Texas Higher Education Coordinating Board

Directions: An institution shall use this form to request a new bachelor’s or master’s degree program that meets all criteria for automatic approval in Coordinating Board Rules, Chapter 5, Subchapter C, Section 5.44: (a) The program has institutional and governing board approval; (b) the program complies with the Standards for Bachelor’s and Master’s Programs; (c) adequate funds are available to cover the costs of the new program; (d) new costs during the first five years of the program will not exceed $2 million; (e) the program is a non-engineering program (i.e., not classified under CIP code 14); and (f) the program will be offered by a university or health-related institution. If a new bachelor’s or master’s program does not meet the criteria above, an institution must submit a request using the Form for Requesting a New Bachelor’s and Master’s Degree Program. Information: Contact the Division of Workforce, Academic Affairs and Research at 512/427-6200 for more information.

Administrative Information 1. Institution: 2. Program Name: 3. Proposed CIP Code: 4. Number of Required Semester Credit Hours (SCHs): 5. Administrative Unit: 6. Delivery Mode: 7. Implementation Date: 8. Contact Person: Name: Title: E-mail: Phone:

Signature Page I hereby certify that all of the following criteria have been met in accordance with the procedures outlined in Coordinating Board Rules, Chapter 5, Subchapter C, Section 5.44: (a) The program has institutional and governing board approval. (b) The program complies with the Standard’s for New Bachelor’s and Master’s Programs. (c) Adequate funds are available to cover the costs of the new program. (d) New costs during the first five years of the program will not exceed $2 million. (e) The program is a non-engineering program (i.e., not classified under CIP code 14). (f) The program is not one which the institution previously offered and has been closed due to low productivity in the last 10 years. (g) The program will be offered by a university or health-related institution. I understand that the Coordinating Board will update the program inventory for the institution if no objections to the proposed program are received during the 30-day public comment period. ________________________________________________________________ Chief Executive Officer Date I hereby certify that the Board of Regents has approved this program. Date of Board of Regents approval:_______________________ __________________________________________________________________ Board of Regents (or Designee) Date

Accounting Graduate Work: Amortization expense and Consolidated Income Statements and Balance Sheets

Impairment testing Goodwill: 

Summary:
 Amortization expense – identifiable intangibles $ 2,600,000. Impairment losses – identifiable intangibles 12,100,000. Goodwill impairment loss 135,000,000. With a Total $149,700,000

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. Book value > Sum of discounted cash flows? $5,600,000 > $4,400,000: Yes. Impairment loss = $5,600,000 – $4,400,000 = $1,200,000.

Book value = $18,000,000. Book value > (greater than) 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 for Goodwill: Summary: Amortization expense – identifiable intangibles $ 2,600,000. Impairment losses – identifiable intangibles 13,300,000. Goodwill impairment loss140,000,000. Total $155,900,000.

[a](amounts in millions)

[b]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 Soaper’s reported income adjusted for write-offs of Soaper’s net asset revaluations. Consolidated income is Parson’s and Soaper’s reported revenues and expenses, with Soaper’s expenses adjusted for the revaluation writeoffs. Parson’s separately reported income and consolidated income therefore report the same items, packaged differently.

Calculation of total goodwill is as follows: Calculation of adjustment to investment balance to convert it to complete equity method at January 1, 2013: Consolidation working paper eliminating entries for 2013:

[A][C][E]Stockholders’ equity, January 1, 2013 = $5,000,000 + 1,300,000 – 400,000 = $5,900,000.

[R]Revaluations at January 1, 2013 = original revaluations less writeoffs for 2007-2012.[O]

Goodwill
8,000,000


Identifiable intangibles
4,000,000



Land, buildings and equipment
6,800,000


Investment in Salem
5,200,000

Operating expenses

2,100,000

Land, buildings and equipment

400,000


Goodwill

500,000

Identifiable intangibles

2,000,000


Next:

Salem’s reported net income

$ 2,500,000

Revaluation writeoffs:

Land, buildings and equipment depreciation

400,000

Identifiable intangibles amortization

(2,000,000)

Goodwill impairment loss

(500,000)

Equity in income of Salem

$ 400,000

Original cost   $ 16,000,000
Change in Salem’s retained earnings to 1/1/14
   $14,000,000
3 years land, buildings and equipment depreciation
$1,200,000
3 years identifiable intangibles amortization
($6,000,000)
Goodwill impairment loss to 1/1/14
($2,000,000)
Investment balance, 1/1/14
$23,200,000
Equity in net income, 2014
$400,000
Investment balance, 12/31/14
$23,600,000

	Customer lists	Brand names
Book value > undiscounted cash flows?	No	Yes
Fair value		$3,400,000
Book value		5,200,000
Impairment loss	--	$1,800,000

	Division 1	Division 2
Step one: Division book value > fair value?	Yes	Yes
Step two:
Fair value of goodwill	$1,000,000	$8,000,000
Book value of goodwill	1,600,000	6,400,000
Impairment loss	$ 600,000	-0-

	Division 1	Division 2
Fair value of division	$14,000,000	$20,000,000
Book value of division	16,000,000	24,000,000
Potential goodwill impairment	2,000,000	4,000,000
Actual impairment loss	$ 1,600,000	$ 4,000,000

	Customer lists	Brand names
Fair value	$1,200,000	$3,400,000
Book value	1,500,000	5,200,000
Impairment loss	$ 300,000	$1,800,000

Investment in Saddlestone		10,300,000
Merger expenses		250,000
	Capital stock		10,000,000
	Contingent consideration liability		300,000
	Cash		250,000

Saddlestone’s reported net income	$ 3,000,000
Revaluation writeoff:
Identifiable intangibles $2,000,000/5	(400,000)
Equity in net income of Saddlestone	$ 2,600,000

Investment in Saddlestone		2,600,000
	Equity in net income of Saddlestone		2,600,000

Cash		1,000,000
	Investment in Saddlestone		1,000,000

Acquisition cost	$ 10,300,000
Book value of Saddlestone	(7,200,000)
Excess of acquisition cost over book value	3,100,000
Identifiable intangibles	(2,000,000)
Goodwill	$ 1,100,000

Equity in net income of Saddlestone		2,600,000
	Dividends – Saddlestone		1,000,000
	Investment in Saddlestone		1,600,000

Stockholders’ equity—Saddlestone, 1/1		7,200,000
	Investment in Saddlestone		7,200,000

Identifiable intangibles		2,000,000
Goodwill		1,100,000
	Investment in Saddlestone		3,100,000

Amortization expense		400,000
	Identifiable intangibles		400,000

Eliminating Entries after First and Second Years

Safeco’s reported net income	$ 1,600,000
Revaluation writeoffs:
Equipment $500,000/5	(100,000)
Inventory	(200,000)
Goodwill impairment loss	(50,000)
Equity in net income of Safeco	$ 1,250,000

Investment in Safeco		8,000,000
	Cash		8,000,000

Investment in Safeco		1,250,000
	Equity in net income of Safeco		1,250,000

Cash		600,000
	Investment in Safeco		600,000

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

Equity in net income of Safeco		1,250,000
	Dividends – Safeco		600,000
	Investment in Safeco		650,000

Stockholders’ equity—Safeco, 1/1		7,000,000
	Investment in Safeco		7,000,000

Equipment, net		500,000
Inventory		200,000
Goodwill		300,000
	Investment in Safeco		1,000,000

Depreciation expense		100,000
Cost of goods sold		200,000
Goodwill impairment loss		50,000
	Equipment, net		100,000
	Inventory		200,000
	Goodwill		50,000

Safeco’s reported net income	$ 2,000,000
Revaluation writeoff:
Equipment $500,000/5	(100,000)
Equity in net income of Safeco	$ 1,900,000

Investment in Safeco		1,900,000
	Equity in net income of Safeco		1,900,000

Cash		800,000
	Investment in Safeco		800,000

Equity in net income of Safeco		1,900,000
	Dividends – Safeco		800,000
	Investment in Safeco		1,100,000

Stockholders’ equity—Safeco, 1/1		8,000,000
	Investment in Safeco		8,000,000

Equipment, net		400,000
Goodwill		250,000
	Investment in Safeco		650,000

Depreciation expense		100,000
	Equipment, net		100,000

Goodwill Impairment Losses

Amortization expense for 2014:

Customer relationships	$4,000,000/4	$ 1,000,000
Favorable leaseholds	$8,000,000/5	1,600,000
Total		$2,600,000

Customer relationships

Favorable leaseholds

Brand names

Reporting Unit
Unit FV < BV? 

Asia: $400,000,000 > $300,000,000: No 

South America: $350,000,000> $200,000,000: No
Europe:   $500,000,000< $600,000,000: Yes 

Fair Value of GW: Europe- $500,000,000 – 385,000,000 = 115,000,000 

GW impairment loss: Europe: $250,000,000 – 115,000,000 = $135,000,000



Identifiable Intangibles and Goodwill, IFRS

Amortization expense for 2014:

Customer relationships	$4,000,000/4	$ 1,000,000
Favorable leaseholds	$8,000,000/5	1,600,000
Total		$2,600,000

Customer relationships

Favorable leaseholds

Brand names

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	$120,000,000 > $100,000,000: No
Brazil	$140,000,000 >$130,000,000: No
Mediterranean	$190,000,000 < $220,000,000: Yes	$220,000,000 – 190,000,000 = $30,000,000
Scandinavia	$230,000,000 < $300,000,000: Yes	$300,000,000 – 230,000,000 = $70,000,000

Consolidated Income Statement

Sales $5,000 + 2,000	$7,000
Cost of goods sold $3,000 + 800 + 160	3,960
Gross margin	3,040
Depreciation expense $500 + 140 – (200/10)	620
Interest expense $100 + 60 + (100/5)	180
Other expenses $600 + 700	1,300
Total operating expenses	2,100
Net income	$ 940

Consolidation Using Cost Method

Acquisition cost	$ 7,500,000
Book value of Baker	(5,000,000)
Excess of acquisition cost over book value	2,500,000
Fair value less book value:
Buildings	(1,000,000)
Goodwill	$ 1,500,000

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

Investment in Baker		660,000
	Stockholders’ equity –Adam		660,000

Dividend income – Adam		100,000
	Dividends – Baker		100,000

Stockholders’ equity—Baker, 1/1		5,900,000
	Investment in Baker		5,900,000

Buildings, net		760,000
Goodwill		1,500,000
	Investment in Baker		2,260,000

Depreciation expense		40,000
Goodwill impairment loss		100,000
	Buildings, net		40,000
	Goodwill		100,000

College Cranium: Accounting Example 1

Santo’s reported net income	$ 5,000,000
Revaluation writeoffs:
Inventory (1)	(2,000,000)
Plant assets $8,000,000/8	(1,000,000)
Patents $1,500,000/4	(375,000)
Long-term debt $1,000,000/10	100,000
Goodwill impairment loss	(400,000)
Equity in net income of Santo	$ 1,325,000

Consolidation Working Paper, December 31, 2014
Trial Balances Taken From Books
Dr (Cr)
Eliminations
Ponon
Santo
Dr (DEBIT)
Cr(CREDIIT)
Consolidated
Balances
Cash and receivables
$ 4,500,000
$ 3,100,000
$ 7,600,000
Inventory
5,000,000
5,200,000
(R) 2,000,000
2,000,000 (O-1)
10,200,000
Plant assets, net
8,000,000
12,000,000
(R) 8,000,000
1,000,000 (O-2)
27,000,000
Investment in Santo 26,325,000
--
1,325,000 (C)
10,000,000 (E)
15,000,000 (R)
--
Patents --
--
(R) 1,500,000
375,000 (O-3)
1,125,000
Goodwill --
--
(R) 4,500,000
400,000 (O-5)
4,100,000
Current liabilities (5,100,000)
(2,000,000)
(7,100,000)
Long-term debt
(20,000,000)
(3,300,000)
(O-4) 100,000
1,000,000 (R)
(24,200,000)
Capital stock
(8,000,000)
(6,000,000)
(E) 6,000,000
(8,000,000)
Retained earnings, Jan. 1 (4,800,000)
(4,000,000)
(E) 4,000,000
(4,800,000)
Sales
(30,000,000)
(13,200,000)
(43,200,000)

Equity in income of Santos 
(1,325,000)
--
(C) 1,325,000
--
Cost of goods sold 18,000,000
4,000,000
(O-1) 2,000,000
24,000,000
Depreciation and amortization expense 2,000,000
3,200,000
(O-2) 1,000,000
(O-3) 375,000
6,575,000
Interest and other expenses
5,400,000
1,000,000
100,000 (O-4)
6,300,000
GW impairment loss
--
--
(O-5) 400,000
400,000 $ -0- $ -0-
$ 31,200,000 $31,200,000 $ -0-

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
Goodwill impairment loss	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
Cash and receivables	$ 7,600,000
Inventory	10,200,000
Plant assets, net	27,000,000
Patents	1,125,000
Goodwill	4,100,000
Total assets	$ 50,025,000
Liabilities and stockholders’ equity
Current liabilities	$ 7,100,000
Long-term debt	24,200,000
Capital stock	8,000,000
Retained earnings	10,725,000
Total liabilities and stockholders’ equity	$ 50,025,000

MULTIPLE CHOICE 

ANSWERS

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:

2.  Eliminating entry O is as follows [b]

3. Calculation of Equity in Net Income [a]

4. c

5. c

6. d

7. c

8. d

9. a

10.  $500,000 – 100,000 = $400,000 [a]

 Consolidation at End of First Year

1. The acquisition entry is as follows:
   Calculation of 2013 equity in net income:
   Peak’s equity method entries for 2013:

2. Calculation of goodwill is as follows: Consolidation working paper eliminating entries for 2013: 
[C],[E],[R],[O]

a. Calculation of equity in net income for 2014:

Peerless’s entries for 2014:

Calculation of goodwill is as follows:

Consolidation working paper eliminating entries for 2014:

[C][E][R][O]

b. Calculation of equity in net income for 2015:

Peerless’s equity method entries for 2015:

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.

Consolidation working paper eliminating entries for 2015:

[C][E]

Stockholders’ equity—Safeco at 1/1/2015 = $7,000,000 + 1,600,000 – 600,000 = $8,000,000

[R][O]

[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 unit’s 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 Network’s 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 Warner’s 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 CW’s individual assets, liabilities, revenues and expenses are not reported on the consolidated financial statements.

Identifiable Intangibles and Goodwill, U.S. GAAP

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.

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.

Condensed Consolidated Financial Statements One Year after Acquisition

Calculation of equity in net income for 2014:

(1) Santo’s beginning inventory on its own books is $3,000,000 (= $5,200,000 + 4,000,000 – 6,200,000). Since Santo’s cost of goods sold is $4,000,000, its beginning inventory is completely sold in 2014, and the revaluation is written off. >> b. and c.