Giannacarro, Inc., purchased 100% of the common shares of Arietta for $290,000 on January 1, 20X7. Arietta’s balance sheet just before the acquisition was as follows ($ in thousands):
Cash ................. $ 90
Net fixed assets .............. 220
Total assets ............... $310
Liabilities ............... $240
Stockholders’ equity ............ 70
Total liabilities and stockholders’ equity ... $310
The fair market values of Arietta’s assets and liabilities were equal to their book values.
1. Compute the amount of goodwill Giannacarro would recognize on this purchase. Where would this goodwill appear on Giannacarro’s financial statements?
2. Giannacarro’s 20X7 net income from all operations excluding those of Arietta was $100,000. Arietta had a net loss of $5,000. Assume there were no intercompany transactions. Compute consolidated net income for 20X7.
3. Repeat requirement 2 assuming Giannacarro concluded goodwill was impaired by $20,000.
4. How much goodwill appears on the consolidated balance sheet after requirement 3?