Northrop Grumman, a global defense contractor and aircraft manufacturer headquartered in Los Angeles, CA, acquired Essex Corporation on January 25, 2007, for $590 million in cash, including transaction costs of $15 million, and assumed a further $23 million of debt on Essex's behalf. According to Northrop Grumman's annual report, "Essex provides signal processing services and products, and advanced optoelectronic imaging for U.S. government intelligence and defense customers."
Assume that Essex continued as a subsidiary of Northrop Grumman, its stockholders' equity at the date of acquisition was $350,000,000, and the excess of acquisition cost over book value was allocated to identifiable net assets as follows:
Inventories$30,000,000
Identifiable intangibles (5-year life)40,000,000
In-process research and development (IPRD)60,000,000
Plant assets (20-year life, straight-line)50,000,000
Inventories are accounted for under LIFO (60 percent) and FIFO (40 percent), and both pools increased in 2007 and 2008. The goodwill was impaired by $15,000,000 in 2007 and the IPRD was impaired by $20,000,000 in 2008. Essex reports the following net income and pays out 55 percent in dividends.
Year ended December 31, 2007 (post-acquisition)
$140,000,000
Year ended December 31, 2008 
160,000,000
Required
a. Calculate the amount of goodwill recognized in the Essex acquisition, following current U.S. GAAP.
b. Use the complete equity method to compute the equity income accrual, and prepare all working paper eliminations in consolidation at December 31, 2007. A full year of revaluation write-offs is made in 2007.