Question

On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc.,...

On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $450 million. The fair value of Harman's identifiable tangible and intangible assets totaled $533 million, and the fair value of liabilities assumed by Pesky was $170 million. Pesky performed a goodwill impairment test at the end of its fiscal year ended December 31, 2021. Management has provided the following information:

Fair value of Harman, Inc. $ 430 million

Fair value of Harman's net assets (excluding goodwill) 370 million

Book value of Harman's net assets (including goodwill) 446 million

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 2021, if any.

3. If an impairment loss is required, prepare the journal entry to record the loss.

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Answer #1

Answer:-

1)

Calculation showing Goodwill on acquisition of Harman Inc

Net consideration paid for acquiring of Harman Inc

 450 million
Net asset value of Harman Inc. :
Fair value of tangible & intangible assets as on date of acquisition $ 533 million
Less:fair value of liabilities $ 170 million
Goodwill on acquisition (450-363) 87 million

2)

Determination of implied goodwill

Particulars Amount(million) $
Fair value of Hartman's Inc. 430 million
Less:Fair value of Harman's Inc. net assets (excluding goodwill) 370 million
Implied value of goodwill 60 million

Calcualtion of Impairment loss:-

Book value of goodwill= $ 87 million

Less:Implied value of Goodwill = $ 60 million

Impairment loss= $ 27 million

Answer(3):-

General journal Debit(million) Credit(million)
Loss on impairment $ 27
To goodwill $ 27
(Impairment loss recorded)
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