Question

Using the U.S. Securities and Exchange Commission’s EDGAR database, select a public company that has consolidated subsidiaries. To minimize the chances of classmates selecting the same company, select one that begins with the same letter as your first or last name. In your discussion post, name the company and all of its subsidiaries. Then answer the following questions: What is the accounting valuation basis for consolidating assets and liabilities in the business combination? What percentage ownership does the parent have in one of the subsidiaries reported? Are there any outside interests that have been accounted for with this subsidiary? Is there any goodwill recorded? If yes, are there notes in the financial statement regarding a goodwill impairment loss? If so, how were they recorded? If not, how and when should any goodwill impairment loss be recorded? My first name starts with an S.

Use the Sprint company

Answer 1

Name of the company

Sprint corporation

Subsidiaries:

Sprint corporation is the parent company and It has about 36 subsidiaries listed as below:

SUBSIDIARY	STATE/COUNTRY
AirGate PCS, LLC	Delaware
Alamosa (Wisconsin) Properties, LLC	Wisconsin
Alamosa Missouri Properties, LLC	Missouri
Alamosa Missouri, LLC	Missouri
Alamosa Properties, LLC	Texas
Alamosa Wisconsin, LLC	Wisconsin
Alda Wireless Holdings, LLC	Delaware
American Telecasting Development, LLC	Delaware
American Telecasting of Anchorage, LLC	Delaware
American Telecasting of Bend, LLC	Delaware
American Telecasting of Columbus, LLC	Delaware
American Telecasting of Denver, LLC	Delaware
American Telecasting of Fort Myers, LLC	Delaware
American Telecasting of Ft. Collins, LLC	Delaware
American Telecasting of Green Bay, LLC	Delaware
American Telecasting of Lansing, LLC	Delaware
American Telecasting of Lincoln, LLC	Delaware
American Telecasting of Little Rock, LLC	Delaware
American Telecasting of Louisville, LLC	Delaware
American Telecasting of Medford, LLC	Delaware
American Telecasting of Michiana, LLC	Delaware
American Telecasting of Monterey, LLC	Delaware
American Telecasting of Redding, LLC	Delaware
American Telecasting of Santa Barbara, LLC	Delaware
American Telecasting of Seattle, LLC	Delaware
American Telecasting of Sheridan, LLC	Delaware
American Telecasting of Yuba City, LLC	Delaware
APC Realty and Equipment Company, LLC	Delaware
Assurance Wireless of South Carolina, LLC	Delaware
ATI of Santa Rosa, LLC	Delaware
ATI Sub, LLC	Delaware
ATL MDS, LLC	Delaware
Bay Area Cablevision, LLC	Delaware
Bluebottle USA Holdings, LLC	Delaware
Bluebottle USA Investments L.P.	Delaware
Boost Worldwide, Inc.	Delaware

.

Accounting valuation basis for consolidating assets and liabilities in the business combination

Fair market value of receivables and related assets as referred to below phrases extracted from the financial statements of Sprint

(In January 2017, the FASB issued authoritative guidance amending Business Combinations: Clarifying the Definition of a Business , to clarify the definition of a business with the objective of providing a more robust framework to assist management when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company for its fiscal year beginning April 1, 2018, including interim periods within that fiscal year, with early application permitted. The amendments are to be applied prospectively to business combinations that occur after the effective date.

The purchase price (“ Purchase Price ”) for the Receivables and the Related Assets shall be an amount equal to the fair market value of the Receivables and the Related Assets (taking into account a discount for the time value of money, historic and expected losses and the Originators’ obligations pursuant to Section 3.2 ), which shall initially be 99.75% of the Unpaid Balance of the Receivables (except with respect to Lease Receivables and Related Assets, for which the Purchase Price shall be 95.00% of the Unpaid Balance of the Lease Receivables), or as otherwise agreed to by each Originator and its Related SPE at the time of the purchase or acquisition. The conveyance of the Lease Devices shall be in the form of a capital contribution. To the extent the value of a Receivable and Related Assets exceeds the Purchase Price, such excess shall be deemed a capital contribution to the equity of the Related SPE by the applicable Originator.)

What percentage ownership does the parent have in one of the subsidiaries reported?

Sprint communications - 100% owned subsidiary

Are there any outside interests that have been accounted for with this subsidiary?

Below is the extract from note 15 which is bening displayed in the notes to financial statements:

On September 11, 2013, Sprint Corporation issued $2.25 billion aggregate principal amount of 7.250% notes due 2021 and $4.25 billion aggregate principal amount of 7.875% notes due 2023 in a private placement transaction with registration rights. On December 12, 2013, Sprint Corporation issued $2.5 billion aggregate principal amount of 7.125% notes due 2024 in a private placement transaction with registration rights. Each of these issuances is fully and unconditionally guaranteed by Sprint Communications (Subsidiary Guarantor), which is a 100% owned subsidiary of Sprint Corporation (Parent/Issuer). In connection with the foregoing, in November 2014, the Company and Sprint Communications completed an offer to exchange the notes for a new issue of substantially identical exchange notes registered under the Securities Act of 1933. We did not receive any proceeds from this exchange offer. In addition, on February 24, 2015, Sprint Corporation issued $1.5 billion aggregate principal amount of 7.625% notes due 2025, which are fully and unconditionally guaranteed by Sprint Communications.

Is there any goodwill recorded?

Yes. $6578 of goodwill is reported.

If yes, are there notes in the financial statement regarding a goodwill impairment loss? If so, how were they recorded?

No, Below is the extract regarding impairment of goodwill:

In January 2017, the FASB issued authoritative guidance regarding Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment , which simplifies the goodwill impairment test by eliminating the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge (Step 2 of the test), but rather to record an impairment charge based on the excess of the carrying value over its fair value. The standard will be effective for the Company’s annual goodwill impairment test in the fiscal year beginning April 1, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

If not, how and when should any goodwill impairment loss be recorded?

Goodwill impairment is when the goodwill carrying value in financial statements is more than its fair value.

Below is the process to identify good will impairment:

1. Fair value of a reporting unit to its carrying value on the balance sheet. by using financial models for fair value estimation. If the fair value exceeds the carrying value, no impairment exists, and companies are not allowed to write up their goodwill. If the fair value is less than the carrying value, the company must perform the second step by applying the fair value to the identifiable assets and liabilities of the reporting unit. The excess balance of the fair value is the new goodwill, and the carrying value of the goodwill must be reduced by booking a goodwill impairment charge.