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.

Show calculations.

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)
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Determining ending consolidated balances in the second year following the acquisition—Equity method Assume a parent company...
Determining ending consolidated balances in the second year following the acquisition—Equity method Assume a parent company acquired a subsidiary on January 1, 2018. The purchase price was $760,000 in excess of the subsidiary’s book value of Stockholders’ Equity on the acquisition date, and that excess was assigned to the following [A] assets: [A] Asset Original Amount Original Useful Life (years) Property, plant and equipment (PPE), net $360,000 12 Goodwill 400,000 Indefinite $760,000 The AAP asset relating to undervalued PPE with...
17) On 1/1/15, Pom Company Acquired 90% of the voting common stock of Star Co. for...
17) On 1/1/15, Pom Company Acquired 90% of the voting common stock of Star Co. for $91,700,000 in cash, The FV of the NCI in Star at date of acquisition was 6,300,000. Star’s net book value is $14,000,000 at date of acquisition. Star’s assets and liabilities were reported on its books at values approximating FV, except its P&E (10 yr. life, S-L) was overvalued by $25,000,000 and Star had previously unreported intangible assets with a FV of $40,000,000 (5 yr....
On January 1, 2017, Portland Company acquired all of Salem Company’s voting stock for $16,000,000 in...
On January 1, 2017, Portland Company acquired all of Salem Company’s voting stock for $16,000,000 in cash. Some of Salem’s assets and liabilities at the date of purchase had fair values that differed from reported values, as follows:    Book value Fair value Buildings and equipment, net (20 years, straight-line) $11,000,000 $ 3,000,000 Identifiable intangibles (5 years, straight-line) 0 10,000,000 Salem’s total shareholders’ equity at January 1, 2017, was $4,000,000. It is now December 31, 2020 (four years later). Salem’s...
The trial balance of Garner Company at January 1, 2015 is as follows, along with estimated...
The trial balance of Garner Company at January 1, 2015 is as follows, along with estimated fair values of its assets and liabilities: Book Value Dr (Cr) Fair Value Dr (Cr) Current assets $ 200,000 $ 300,000 Plant & equipment, net 28,000,000 35,000,000 Investment in HTM securities 1,000,000 3,000,000 Client contracts 0 5,000,000 Liabilities (15,000,000) (15,200,000) Capital stock (14,000,000) -- Retained earnings (200,000) -- Total $ 0 Information on the revalued assets and liabilities is as follows: Revaluation Remaining Life...
Assumptions: At the beginning of 2009, CanGo purchased the online gaming company. This purchase was for...
Assumptions: At the beginning of 2009, CanGo purchased the online gaming company. This purchase was for cash, paid for through the proceeds of the IPO and results in goodwill. 90% of the online book sales comes from JIT, the other 10% through the inventory which CanGo possesses. 100% of the CD/DVD/MP3 come through CanGo inventory. The result is that 80% of ALL sales is JIT and 20% is inventory. Student Name: Instructions: Go to the CanGo intranet found in the...
Question 36 ABC Company issues $10,000,000, 8%, 10-year bonds at 96.5 on July 1, 2019. Interest...
Question 36 ABC Company issues $10,000,000, 8%, 10-year bonds at 96.5 on July 1, 2019. Interest is paid on July 1 and January 1. The journal entry to record the issuance will include a debit to cash for $10,000,000 a credit to cash for $9,650,000 a credit to bonds payable for $9,650,000 a debit to discount on bonds payable for $350,000 Question 37 DEF Corporation retires its $100,000 face value bonds at 105 on January 1, following the payment of...
1.) Axel Company buys and sells securities expecting to earn profits on short-term differences in price....
1.) Axel Company buys and sells securities expecting to earn profits on short-term differences in price. During 2016, Axel Company purchased the following trading securities: Security                      Cost                             Fair Value (Dec. 31, 2016) A                                  P195,000                    P225,000 B                                  300,000                      162,000 C                                  660,000                      678,000 Before any adjustments related to these trading securities, Axel Company had net income of P900,000.       What is Axel’s net income after making any necessary trading security adjustments? Net income before trading security adjustment _____________ Unrealized loss (P1,155,000-P1,065,000) ____________ Net...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...