On May 28, 2016, Pesky Corporation acquired all of the outstanding common stock
ID: 2466952 • Letter: O
Question
On May 28, 2016, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc. for $420 Million. The fair value of Harman's identifiable tangible and intangible assets totaled $512 Million and the fair value of liabilities assumed by Pesky was $150 million. Pesky performed a goodwill impairment test at the end of its fiscal year ended December 31, 2016. Management has provided the following information: Fair value of Harman, Inc. $400 million Fair value of Harman's net assets (excluding Goodwill) $370 million Book value of Harman's net assets (including Goodwill) $410 million 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 2016, if any. 3. If an impairment loss is required, prepare the journal entry to record the loss. Select "no entry required", if no entry is required. 4. Record the journal entry for the impairment loss.
Explanation / Answer
1)Calculation of goodwill (book value)
Consideration exchanged 420,000,000
Less: Fair Value of net assets:
Assets 512,000,000
Less: Liabilities Assumed -150,000,000 - 362,000,000
Goodwill 58,000,000
2)There is an impairment loss . Because the book value of net assets (410 million) is more than fair value (400 million).
Determination of Implied Goodwill:
Fair Value of Harman, Inc. 400,000,000
Fair Value of Harman's net assets -370,000,000
Implied Value of Goodwill 30,000,000
Measurement of Impairment Loss:
Book value of Goodwill 58,000,000
Implied Value of Goodwill 30,000,000
Impairment Loss 28,000,000
3 & 4. Journal entry for the impairment loss.
Loss on Impairment of Goodwill 28,000,000
Goodwill 28,000,000
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