Accounting for Goodwill

Questions:

1. Use data in Exhibit 1 to understand the purchase on May 3, 2006, of Jill by Talbots:

a. How much cash was paid to shareholders of J. Jill?

b. How many shares of J. Jill were purchased by Talbots?

c. What was the fair market value of assets that Talbots acquired from J. Jill?

d. Why was Talbots willing to pay more than the fair value of the tangible assets acquired from J. Jill?

e. What were the liabilities (including the $400 million cash obtained through debt financing) assumed by Talbots in the acquisition of J. Jill?

2. What journal entry(s) was required when Talbots recorded the purchase of J. Jill?

3. For Fiscal Year 2007 (ending February 3, 2007), make an estimate of the amortization of goodwill and other intangible assets planned by Talbots when it purchased J. Jill on May 3, 2006?

4. Using Exhibit 3, estimate the amount of amortization or impairment of goodwill associated with J.Jill for Fiscal Year 2008 (ending February 2, 2008)if Statement of Financial Accounting (SFAS) No. 142 has not changed accounting for goodwill in 2001 and Talbots had chosen to amortize goodwill recognized in the purchase of J. Jill over the allowed period of 40 years?

5. Compare your estimates of income for Fiscal Year 2008 in question 4 to the net loss actually reported after the impairments and reorganization charges taken in FY 2008. Are the differences significant? What would the loss have been without those impairments being recognized?