PROBLEM 2-2Merger and Consolidation, Goodwill Impairment Stockholders of Acme Company, Baltic Company, and Colt Company are considering alternative arrangementsfor a business combination. Balance sheets and the fair values of each companys assets on October 1, 2014, wereas follows:

AcmeBalticColtAssets$3,900,000$7,500,000$950,000Liabilities$2,030,000$2,200,000$260,000Common stock, $20 par value2,000,0001,800,000540,000Other contributed capital0600,000190,000Retained earnings (deficit)(130,000)2,900,000(40,000)Total equities$3,900,000$7,500,000$950,000Fair values of assets$4,200,000$9,000,000$1,300,000

Acme Company shares have a fair value of $50. A fair (market) price is not available for shares of the othercompanies because they are closely held. Fair values of liabilities equal book values.

Required

:A.Prepare a balance sheet for the business combination. Assume the following: Acme Company acquires all theassets and assumes all the liabilities of Baltic and Colt Companies by issuing in exchange 140,000 shares ofits common stock to Baltic Company and 40,000 shares of its common stock to Colt Company.

B.Assume, further, that the acquisition was consummated on October 1, 2014, as described above. However, bythe end of 2015, Acme was concerned that the fair values of one or both of the acquired units had deteriorated.To test for impairment, Acme decided to measure goodwill impairment using the present value of future cashflows to estimate the fair value of the reporting units (Baltic and Colt). Acme accumulated the following data:

Carrying Value ofFair ValueYearPresent Value Identifiable Identifiable 2015 of Future Cash FlowsNet Assets*Net AssetsBaltic$6,500,000$6,340,000$6,350,000Colt$1,900,0001,200,0001,000,000

Prepare the journal entry, if needed, to record goodwill impairment at December 31, 2015.