On May 28, 2013, Pesky Corporation acquired all of the outstanding common stock

Question

On May 28, 2013, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $430 million. The fair value of Harman's identifiable tangible and intangible assets totaled $519 million, and the fair value of liabilities assumed by Pesky was $150 million.

     Pesky performed a goodwill impairment test at the end of its fiscal year ended December 31, 2013. Management has provided the following information:

On May 28, 2013, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $430 million. The fair value of Harman's identifiable tangible and intangible assets totaled $519 million, and the fair value of liabilities assumed by Pesky was $150 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. $ 410 million   Fair value of Harman's net assets (excluding goodwill) 370 million   Book value of Harman's net assets (including goodwill) 422 million Required: 1. Determine the amount of goodwill that resulted from the Harman acquisition. (Enter your answer in millions.)                     Goodwill 2. Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2013, if any. (Enter your answers in millions.) Goodwill impairment loss 3. If an impairment loss is required, prepare the journal entry to record the loss. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 5,500,000 should be entered as 5.5)

Explanation / Answer

1) purchase Price $ 430 million

fair value of assets $ 519 million

fair value of liabilities $ 150 million

Net fair value $ 369 million

Goodwill $ 61 million

2) Fair value of herman Inc. $ 410 million

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

Implied value of goodwill $ 40 million

Impairment Loss:

Book value of goodwill (as per requirement 1) $ 61 million

Implied value of goodwill $ 40 million

Impairment loss $ 21 million

3) Journal Entry

Loss on impairment of goodwill debit $ 21 million

Goodwill credit $ 21 million

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