Question

On May 28, 2021, Pesky Corporation acquired all of the outstanding common stock of Harman, Inc., for $570 million. The fair value of Harman's identifiable tangible and intangible assets totaled $617 million, and the fair value of liabilities assumed by Pesky was $163 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. Fair value of Harman's net assets (excluding goodwill) Book value of Harman's net assets (including goodwill) $550 million 490 million 570 million Required: 1. Determine the amount of goodwill that resulted from the Harman acquisition 2. Determine the amount of goodwill impairment loss that Pesky should recognize at the end of 2021, if any. 3. If an impairment loss is required, prepare the journal entry to record the loss. Complete this question by entering your answers in the tabs below. Req 1 and 2 Req3 Determine the amount of goodwill that resulted from the Harman acquisition and the amount of goodwill impairment loss that Pesky should recognize at the end of 2021, if any. (Negative amounts should be indicated by a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10). Goodwill Goodwill impairment loss million million

Answer 1

The impairment test :-

An asset is impaired when the carrying amount of asset exceeds its recoverable amount.

If recoverable amount of asset is more than carrying amount, we ignore the difference and the asset is carried on at same book value.

Recoverable amount for an asset is defined as the higher of (1) Net selling Price ( i.e. fair Value of asset) or (2) Value in use.

Value in use is the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life.

Step 1 :- Calculations Showing Goodwill on Acquisition of Harmen, Inc.

Sr. No.	Particulars	$ (Million)	$ (Million)
a	Net Consideration paid for Acquiring Harman,Inc.		570
b	Net Asset Value of Harman,Inc.
	Fair Value of tangible and Intangible Assets as on Date of Acquisition	617
	Less:- Fair Value of Liabilities	-163	454
c = a-b	Goodwill on Acquisition		116

.

Step 2:- Calculations showing Goodwill impairment loss

Particulars	$ (Million)
Fair value of Harman's Inc.	550
Less:- Fair value of Harman's Inc. net assets (Excluding goodwill)	490
Goodwill impairment loss	60

.

Step 3:- Calculation of impairment loss of Asset

Particulars	$ (Million)
Book Value of Goodwill	116
Less:- Goodwill impairment loss	60
Impairment Loss	56

Journal Entry for recording Impairment Loss

	General Journal Entry		($ in Million)
No.	Particulars	Debit	Credit
1	Loss on Impairment	56
	To Goodwill		56
	(Being Impairment loss recorded)