A firm made an acquisition at the end of 2008 and recorded the acquisition cost of $428

Question:

A firm made an acquisition at the end of 2008 and recorded the acquisition cost of $428 million on its balance sheet as tangible assets of $349 million and good will of $79 million. The firm used a required return of 10 percent as a hurdle rate when evaluating the acquisition and determined that it was paying fair value.

a. What is the projected residual income from the acquisition for 2009?

b. By the end of 2009, the tangible assets from the acquisition had been depreciated to a book value of $301 million. Management ascertained that the acquisition would subsequently earn an annual return of only 9 percent on book value at the end of 2009.

c. What is the amount by which goodwill should be impaired under the FASB and IASB requirements for impairment?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...