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69 Is a Reported Goodwill Impairment Loss Really a Goodwill Impairment Loss? A Financial Reporting Case

Downloaded from http://meridian.allenpress.com/doi/pdf/10.2308/iace-52460 by Kathryn Hansen on 22 May 2020ISSUES IN ACCOUNTING EDUCATION American Accounting Association Vol. 34, No. 3 DOI: 10.2308/iace-52460

August 2019

pp. 59–69

Is a Reported Goodwill Impairment Loss Really a Goodwill Impairment Loss? A Financial Reporting Case on Evaluating the Efficacy of Authoritative Guidance

Casey J. McNellis Walter R. Teets Gonzaga University

I. THE CASE

Background

AM Enterprises (AM), a private global conglomerate of consumer product manufacturers in the landscaping/gardening space, purchased 100 percent of the stock of two companies, ZD Corporation (ZD) and Hope Industries (Hope), in January 2015. This was a bold move for AM, as the acquisitions represented a new venture for the company and the entrance into a new segment in which it had no experience. As a result of the transactions, AM initially reported $3.2 million of goodwill on its consolidated balance sheet, $2 million relating to the acquisition of ZD and $1.2 million relating to Hope.

The New Segment

ZD produces and sells high-end household accessories in retail markets across the United States. The company’s top- selling products are its premium lines of kitchen and bathroom cabinet hardware and light fixtures. ZD’s products are primarily sold through large retailers and wholesalers in large metropolitan areas. In recent years, however, company management has made a focused effort on selling directly to consumers through the company website. Accordingly, ZD marketing personnel have developed strategic advertising approaches to direct customers to its commerce website. Management anticipates that this initiative will greatly improve product margins and, thus, it is expected that direct-to-consumer sales will surpass sales through retailers/wholesalers within the next five …