Problem 1 On July 31, 2015, Baloo Company paid $3,029,500 in cash to acquire all of the common stock of Louie Enterprises, which then became a division of Baloo. Louie had the following balance sheet at the time of the acquisition: Current assets Noncurrent assets $809,900 2,701,900 $3,511,800 Current liabilitie:s Long-term liabilities Stockholders' equity $637,000 564,900 2,309,900 S3,511,800 Total assets Total liabilities and stockholders' equity It was determined at the date of the purchase that the fair value of the identifiable net assets of Louie was $2,752,700. Over the next 6 months of operations, the newly purchased division experienced significant operating losses. In addition, managers have Baloo have determined that the Louie division will continued to generate substantial losses for the foreseeable future. At December 31, 2015, Louie reports the following summary information: Current assets Noncurrent assets (including goodwill recognized in purchase) Current liabilities Long-term liabilities $458,000 2,458,500 (723,600) (588,800 $1,604,100 Net assets It is determined that the fair value of the Louie division is $1,863,000. The book values for each of Louie's assets and liabilities (excluding goodwill) are equal to their fair values, except for PP&E, which has a fair value of $155,500 above the book value. Required: (a) What is the amount of goodwill recognized, if any, on July 31, 2015? (b) What is the impairment loss, if any, to be recorded on December 31, 2015? Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (c) Now assume that the fair value of the Louie division is $1,551,500 instead of $1,863,000. Determine the impairment loss, if any to be recorded on December 31,2015. Prepare the journal entry to record the impairment loss, if any, and indicate where the loss would be reported in the income statement. (Hint: to calculate fair value of net identifiable assets, adjust the book value of net assets stated above with what we know about the fair value of PP&E and goodwill, which is calculated in (a).) Problem 2 During the year-end audit of Sher Khan Corporation's financial statements for 2016, you discover the following items: 1. Shere Khan capitalized $57,000 to the Patent account at the beginning of 2015 for the cost of the patent. This amount included $50,000 in R&D costs. The patent was amortized over a straight line 20 year life in 2015 and 2016 At the beginning of 2016, Shere Khan paid its lawyers $8,000 to successfully defend a patent infringement suit related to the patent in Item 1. Shere Khan debited this cost to Legal Fees Expense. At the beginning of 2016, Shere Khan purchased a patent for $30,000 from Mogli Company. It recorded the cost in the Patent account and had amortized the cost over the 20 years. However, the purchased patent was protected for only 7 more years as of the beginning of 2016 2. 3. Required: For each transaction, determine the impact on total assets, liabilities and shareholders' equity for any errors noted in Shere Khan's accounting as of December 31,2016. In other words, are total assets, total liabilities, or total shareholders' equity overstatedot affected/understated, and if yes, by how much? Remember to consider effects from 2015