Case Study (the Talbots, Inc., and Subsidiaries: Accounting for Goodwill)

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THE ANSWERS: QUESTION 1: On May 3, 2006, Talbots paid $ 518,320,000 to shareholders of J. Jill in cash. Talbots purchased (518,320,000/24.05 ) = 21,551,767 shares of J. Jill. The fair market value of assets that Talbots acquired from J. Jill was $ 687,572,000. Talbots was willing to pay more than the fair value of the tangible assets acquired from J. Jill, because J. Jill had intangible assets that worth some money. The liabilities assumed by Talbots in the acquisition of J. Jill were: Current liabilities 55,662,000 Deferred income taxes 95,699,000 Debt acquisition (loan) 400,000,000 Other long-term liabilities 11,820,000 Total liabilities $ 563,181,000 QUESTION 2: The Journal entries required when Talbots recorded the purchase of J. Jill: Cash 400,000,000 Debt (loan) 400,000,000 Investment in J. Jill 524,391,000 Cash 524,391,000 Cash 30,445,000 Deferred income taxes 19,475,000 Other current assets 91,837,000 Property and equipment 154,553,000 Goodwill 211,977,000 Trademarks 79,100,000 Other intangible assets 100,185,000 Current liability 55,662,000 Deferred income taxes 95,699,000 Other long-term liability 11,820,000 Investment in J. Jill 524,391,000 QUESTION 3: For Fiscal Year 2007 (ending February 3, 2007), the amortization of goodwill and other intangible assets planned by Talbots when it purchased J. Jill on May 3, 2006: Goodwill: will not be amortized and will be reviewed for impairment on an annual basis or when events indicate that the asset may be impaired. The amortization of other intangible assets: Amortization Customer relationships 4,723,000 Non-compete agreements 2,243,000 Leasehold interests 1,836,000 QUESTION 4: If Talbots had chosen to amortize goodwill recognized in purchase of J Jill over the allowed period of 40 years, the amount

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