On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $590 million. The fair value of Harman's identifiable tangible and intangible assets totaled $631 million, and the fair value of liabilities assumed by Pesky was $169 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. $570 million
Fair value of Harman's net assets (excluding goodwill) 510 million
Book value of Harman's net assets (including goodwill) 594 million

Required:
a. Determine the amount of goodwill that resulted from the Harman acquisition.
b. Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2021, if any.
c. If an impairment loss is required, prepare the journal entry to record the loss.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-06-23T03:38:04+02:00

Answer:

Explanation:

Calculation of Goodwill -

$ in Million $ in Million

Consideration given $ 590

Less: F.V of Harman's net assets

Assets

631

Less: F.V of Liabilities

(169) (462)

Goodwill on acquisition $ 128

2. The impairment loss Pesky would recognize at the end of year 2021 is $ 68 million , since the book value of the net assets exceeds its fair value.

Calculation :-

$ in million $ in million

Goodwill 128

Less Implied value of goodwill

F.V of Harman's, Inc

570

F.V of Harman's net assets (excluding Goodwill)

(510) (60)

Impairment Loss $ 68

3. Journal entry to record loss:

Dr Cr

Loss on impairment of goodwill Dr $ 68 million

Goodwill

$ 68 million

(To record the impairment loss