For the purchase of the 30% Marc Jacobs investment, LVMH paid 56 million at beginning of this

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Question:

For the purchase of the 30% Marc Jacobs investment, LVMH paid €56 million at beginning of this year, of which €8 million was a premium over LVMH’s proportional share of Marc Jacobs’ net assets at book value at acquisition. €2.5 million of this excess was attributed to identifiable tangible assets with estimated useful lives of five years, straight-line depreciation with no salvage value.

The following data are available for Marc Jacobs in the current fiscal year: Net income = €20 million, and net assets (book value at end of year after all adjustments) = €160 million.

For the investment in Marc Jacobs,
1. Determine the amount of implied goodwill that LVMH would most likely recognize for the investment at acquisition. Do not put any comma or “$” sign, and round your answers to the closest dollar. If none, write 0. Express the answer as dollar numbers, for example, if €1 million, write 1000000.

2. Determine the amount of investment income that LVMH would most likely recognize for its Marc Jacobs investment in the current fiscal year. Do not put any comma or “$” sign, and round your answers to the closest dollar. If none, write 0. Express the answer as dollar numbers, for example, if €1 million, write 1000000.

3. If Marc Jacobs declares dividends in the current fiscal year, how would it affect LVMH’s total assets and is it going to be higher, lower, or unchanged? Write 1 for higher, 2 for lower, and 3 for unchanged.

4. Suppose LVMH sold Marc Jacobs some equipment for €3.3 million in the current fiscal year. The equipment was purchased by LVMH four years ago at an acquisition cost of €7 million. The equipment had a total useful life of five years and an estimated residual value of €2 million. Determine the adjustment to investment income LVMH would most likely report in the current fiscal year. Do not put any comma or “$” sign, and round your answers to the closest dollar. If none, write 0. Express the answer as dollar numbers, for example, if €1 million, write 1000000.

5. Determine the amount of impairment loss, if any, that LVMH would most likely recognize for the investment in the current fiscal year. Assume appraisal shows fair value of Marc Jacobs is at 90% of its net assets. Do not put any comma or “$” sign, and round your answers to the closest dollar. If none, write 0. Express the answer as dollar numbers, for example, if €1 million, write 1000000.