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help! please! Carter Company purchased the Johnston Shoe Company, the maker of the Kangaroo Boo shoes, in 2014 for $18,000,000 (its fair market value a;
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Carter Company purchased the Johnston Shoe Company, the maker of the Kangaroo Boo shoes, in 2014 for $18,000,000 (its fair market value a; the time of acquisition). At the time of the acquisition. Johnston had a net asset value of $11, 750,000 and Carter recorded goodwill of $6, 250,000. Due to the introduction of a wildly popular competitor, the sales of the Kangaroo Boo shoe are expected to decrease. Carter is projecting future net cash flows for Johnston over the next five years as follows: 2015-$8,000,000 2016-$4,000,000 2017-$3,000,000 2018-$2,000,000 2019-$1,000,000 No net cash flows are expected after 2019. There is no readily available market value for Johnston, so Carter will estimate based on discounted cash flows. The required rate of return for Carter is 10% (use to calculate present value). a. What s the amount of goodwill recorded? b. What is the impairment test for the goodwill? c. Is the goodwill associated with Johnston impaired? Show calculations. d. If there is an impairment, calculate the impairment and prepare the journal entry to record the impairmentStep by Step Solution
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