Reference no: EM132805486

On June 21, 2011, ZAGG acquired iFrogz for $96.2 million. The excess of the acquisition price over the fair value of iFrogz's net assets (i.e., tangible assets and identifiable intangible assets, net of assumed liabilities) was $6.925 million which was recorded as "goodwill" at the time of the acquisition.

Problem i. For book purposes, both US GAAP (ASC 350) and International Accounting Standard (IAS 36) do not allow for the amortization of goodwill, but require that goodwill be tested annually for impairment. In Note 7, ZAGG discloses that it conducted a goodwill impairment analysis during the fourth quarter of 2012. What was the amount of the impairment in goodwill that resulted from this analysis in 2012?

Problem ii. For tax purposes, goodwill is allowed to be amortized annually and is, therefore, a deductible expense in a company's tax return. ZAGG amortizes goodwill over a period of 15 years. Note 8 reports a deferred income tax asset of $1,801,000 related to goodwill at December 31, 2012. Explain how goodwill created a deferred income tax asset for ZAGG. Show how ZAGG arrived at this number. You may assume a 35% federal statutory tax rate and a 3% blended state statutory tax rate and that ZAGG began amortizing goodwill for tax purposes starting in July, 2011. [Hint: determine the net (i.e., after amortization) value of goodwill for tax purposes to compare to the net book value of goodwill]