On May 28, 2018, Pesky Corporation acquired all of the outstanding common stock
ID: 2412118 • Letter: O
Question
On May 28, 2018, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $550 million. The fair value of Harman's identifiable tangible and intangible assets totaled $603 million, and the fair value of liabilities assumed by Pesky was $177 million.
Pesky performed a goodwill impairment test at the end of its fiscal year ended December 31, 2018. Management has provided the following information:
Required:
1. Determine the amount of goodwill that resulted from the Harman acquisition.
2. Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2018, if any.
3. If an impairment loss is required, prepare the journal entry to record the loss.
Explanation / Answer
Answer
1 ) goodwill resulted from the harman acquisition
total consideration = 550 millions
less ; fair value of net assets = 603
less ; liabilites assumed = 177 = 426 millions
124 millions
total goodwill = 124 millions
2 ) amount of goodwill impairment loss that pesky should recognize at the end of 2018
determination of implied goodwill
fair value of harman , inc = 530 millions
fair value of harman net assets = 470 millions
implied value of good will = 60 million
calculation of impairment loss
book value of good will = 124 million
implied value of goodwill = 60 million
impairment loss = 64 million
3 ) entry to record impairement loss
loss on impairment of goodwill 64 million
to good will 64 million
( to record impairment loss )
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