Carter Company purchased a company that manufacturers Kangaroo Boo shoes in 2016 for $10,000,000 and...
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Carter Company purchased a company that manufacturers Kangaroo Boo shoes in 2016 for $10,000,000 and the net asset value was $6,000,000. 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 Kangaroo Boo shoes over the next five years as follows:
2017 - $4,000,000
2018 - $2,000,000
2019 - $1,000,000
2020 - $ 500,000
2021 - $ - 0 -
The fair value of the discounted cash flows are $6,450,000.
a. What is the amount of goodwill the company would have recorded at acquisition?
b. Is the goodwill impaired? If yes, calculate the impairment and prepare the journal entry to record the impairment.
Show calculations.
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