Question 1 - Week 7

On May 31, 2015, Walker Company (a US company) paid US$4,000,000 to acquire all of the common stock of Hayden Corporation (an Australian company), which now became a division of Walker. Hayden reported the following US$ balance sheet at the time of the acquisition:

Book Value $

Fair Value $

Current Assets

900,000

1,500,000

Noncurrent Assets

2,700,000

2,300,000

Current liabilities

(600,000)

(700,000)

Long-term liabilities

(500,000)

(400,000)

At December 31, 2015, Hayden reports the following US$ balance sheet information:

Book Value $

Fair Value $

Current Assets

800,000

400,000

Noncurrent Assets (excluding Goodwill)

1,500,000

1,100,000

Current liabilities

(700,000)

(700,000)

Long-term liabilities

(500,000)

(400,000)

During the annual impairment test conducted on December 31, 2015, it was determined that the fair value of the Hayden division as a whole would be equal to the present value (using a discount rate of 10%) of the following estimated future cash follows:

December 31, 2016

December 31, 2017

December 31, 2018

December 31, 2019

December 31, 2020

$265,000

$265,000

$265,000

$265,000

$265,000

Required:

(a) Compute the amount of goodwill recognized, if any, on 5/31/15. (6 points)

(b) Determine the goodwill impairment loss, if any, to be recorded on 12/31/15. (22 points)

(c) On the assumption that the fair value of Hayden on December 31, 2015 was $1,700,000 (instead of using present values), determine the goodwill impairment loss, if any, to be recorded. (22 points)