Co A. purchased Co. B, the maker of shoes, in 2014 for $20,000,000 (its fair market value at the time of acquisition). At the time of the acquisition, Co B had a net asset value of $13,500,000 and Co A recorded goodwill of $6,500,000. Due to the introduction of a wildly popular competitor, the sales of the shoe are expected to decrease. Co A is projecting future net cash flows for Co B over the next five years as follows:

2015 - $6,000,000

2016 - $5,000,000

2017 - $4,000,000

2018 - $2,000,000

2019 - $1,000,000

No net cash flows are expected after 2019. There is no readily available market value for Co B, so Carter will estimate based on discounted cash flows. The required rate of return for Co A is 10% (use to calculate present value).

What is the amount of goodwill recorded?

b. What is the impairment test for the goodwill?

c. Is the goodwill associated with Co B impaired? Show calculations.

d. If there is an impairment, calculate the impairment and prepare the journal entry to record the impairment.