Problem - On May 31, 2015, Walker Company (a US company) paid US$4,000,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker. Hayden reported the following US$ balance sheet at the time of the acquisition:
|
Book Value $
|
Fair Value $
|
|
Current Assets
|
900,000
|
1,500,000
|
|
Noncurrent Assets
|
2,700,000
|
2,300,000
|
|
Current liabilities
|
(600,000)
|
(700,000)
|
|
Long-term liabilities
|
(500,000)
|
(400,000)
|
At December 31, 2015, Hayden reports the following US$ balance sheet information:
|
Book Value $
|
Fair Value $
|
|
Current Assets
|
800,000
|
400,000
|
|
Noncurrent Assets (excluding Goodwill)
|
1,500,000
|
1,100,000
|
|
Current liabilities
|
(700,000)
|
(700,000)
|
|
Long-term liabilities
|
(500,000)
|
(400,000)
|
During the annual impairment test conducted on December 31, 2015, it was determined that the fair value of the Hayden division as a whole would be equal to the present value (using a discount rate of 10%) of the following estimated future cash follows:
|
December 31, 2016
|
December 31, 2017
|
December 31, 2018
|
December 31, 2019
|
December 31, 2020
|
|
$265,000
|
$265,000
|
$265,000
|
$265,000
|
$265,000
|
Required:
(a) Compute the amount of goodwill recognized, if any, on 5/31/15.
(b) Determine the goodwill impairment loss, if any, to be recorded on 12/31/15.
(c) On the assumption that the fair value of Hayden on December 31, 2015 was $1,700,000 (instead of using present values), determine the goodwill impairment loss, if any, to be recorded.