Question

On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $540 million. The fair value of Harman's identifiable tangible and intangible assets totaled $596 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, 2013. Management has provided the following information:



Fair value of Harman, Inc. $ 520 million
Fair value of Harman's net assets (excluding goodwill)
460 million
Book value of Harman's net assets (including goodwill)
534 million

Required:
1.
Determine the amount of goodwill that resulted from the Harman acquisition. (Enter your answer in millions.)


2.
Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2013, if any. (Enter your answers in millions.)

Answer 1

Answer:

1. $114 million

2. $54 million

Explanation:

1. For computing the amount of the goodwill, first we have to calculate the fair value of the net asset which is shown below:

The fair value of net asset = The market value of Red River Chips​' assets - the market value of liabilities

= $596 million - $170 million

= $426 million

And, the acquired price of the outstanding common stock is $540 million

So, the goodwill would be  

= $540 million - $426 million  

= $114 million

2. For computing the impairment loss, first we have to determine the impairment value of goodwill which is shown below:

= Fair value of Harman, Inc - Fair value of Harman's net assets (excluding goodwill)

= $520 million - $460 million

= $60 million

Now the impairment loss would be

= Goodwill value - impairment value of goodwill

= $114 million - $60 million

= $54 million