Effects of Goodwill on the Income Statement 1. Philip Morris purchased General Foods for $5.6 billion. Only $1.7 billion of the purchase price could be assigned to identifiable individual assets and liabilities. How much goodwill was created in the purchase? 2. Philip Morris changed its name to Altria in 2002 to emphasize that it was no longer primarily a tobacco company. It owned Miller Brewing Company and Kraft Foods, as well as operating a financing subsidiary. As a result of numerous acquisitions through time, its 2002 balance sheet showed $37,871 million in goodwill. On its income statement in 2001 goodwill amortization was $1,104 million, while in 2002 only $7 million of goodwill impairment was recorded. In 2002, net earnings were $11,102 million versus $8,500 million in 2001 for a 31% increase. How much of the increase was due to the change in accounting practice that eliminated goodwill amortization? 3. During 2002, Altria sold its wholly owned and consolidated Miller Brewing subsidiary to the South African Brewing Company (SAB) in exchange for SAB stock. Altria is now an owner of more than a 20% equity interest in SAB and will account for this equity interest in the future by recognizing its proportional share of SAB earnings as equity in earnings of an affiliate in its income statement. In 2002, this transaction gave rise to a gain of $2,631 million before income taxes of approximately $900 million. Estimate 2002 net earnings for Altria if neither the change in goodwill amortization nor the sale of Miller had occurred, and contrast the percentage change to the original 31% increase.