Question

Carter Company purchased a company that manufacturers Kangaroo Boo shoes in 2016 for $10,000,000 and the...

Carter Company purchased a company that manufacturers Kangaroo Boo shoes in 2016 for $10,000,000 and the net asset value was $6,000,000. Due to the introduction of a wildly popular competitor, the sales of the Kangaroo Boo shoe are expected to decrease. Carter is projecting future net cash flows for Kangaroo Boo shoes over the next five years as follows:

2017 - $4,000,000

2018 - $2,000,000

2019 - $1,000,000

2020 - $ 500,000

2021 - $ - 0 -

The fair value of the discounted cash flows are $6,450,000.

a. What is the amount of goodwill the company would have recorded at acquisition?

b. Is the goodwill impaired? If yes, calculate the impairment and prepare the journal entry to record the impairment.

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Homework Answers

Answer #1

a. Amount of Goodwill recorded at Acquisition = Purchase Cost - Net Assets Value

= $10,000,000 - $6,000,000

= $4,000,000

b.

Yes the Goodwill is impaired.
A. Fair Value of Discounted Cash Flows $         64,50,000
B. Net Assets Value $         60,00,000
C. Goodwill Value (A-B) $           4,50,000
D. Goodwill already recognized $         40,00,000
E. Impairment (D-C) $         35,50,000
Journal Entry: 2017
Impairment of Goodwill $ 35,50,000
To Goodwill $         35,50,000
(to record impairment)
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