Question

CARLOS DIVISION NET ASSETS AS OF DECEMBER 31, 2017 (IN MILLIONS) Cash $ 50 Accounts receivable...

CARLOS DIVISION
NET ASSETS
AS OF DECEMBER 31, 2017 (IN MILLIONS)
Cash $ 50
Accounts receivable 207
Property, plant, and equipment (net) 2620
Goodwill 195
Less: Notes payable (2649)

The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be $400 million. Management has also received an offer to purchase the division for $337 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.

Instructions:

Calculate the impairment, if any, at December 31, 2017.

B)

On July 1, 2017, Brigham Corporation purchased Young Company by paying $229311 cash and issuing a $111746 note payable to Steve Young. At July 1, 2017, the balance sheet of Young Company was as follows.

Cash $ 54634
Accounts receivable 88535
Inventory 102738
Land 44447
Buildings (net) 74332
Equipment (net) 72616
Trademarks 10095
Accounts payable 202241

The recorded amounts all approximate current values except for land (fair value of $52997), inventory (fair value of $122338), and trademarks (fair value of $13890).

Calculate the amount of goodwill in this transaction.

Business   Accounting   
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Homework Answers

Answer #1

Part A

The fair value of the assets is less than the carrying value so impairment has occurred.

Fair Value = 337

Less: (Carrying Amount - Goodwill) (423-195) =228

Implied Value of Goodwill = 109

Less: Carrying Value of Goodwill = 195

Impairment = -86

Impairment Loss = $8,600,000

Part B

Goodwill = liabilities + cash payment - fair value of assets

Total assets

Cash = 54634

Accounts receivable = 88535

Inventory = 122338

Land = 52997

Buildings (net) = 74332

Equipment (net) = 72616

Trademarks = 13890

Total assets = 479342

Total liabilities including cash payments

Accounts Payable = 202241

Notes Payable = 111746

Cash Payments = 229311

Total liabilities including cash payments = 543298

Goodwill = 543298-479342 = 63956

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