Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Beta Company Book Values Estimated Market Values Total identifiable assets $589,600 $799,500 Total liabilities 294,300 348,700 Owners' equity $295,300 Cumulative total net cash earnings for the past five years of $884,400 includes extraordinary cash gains of $62,600 and nonrecurring cash losses of $49,900. Alpha Company expects a return on its investment of 12%. Assume that Alpha prefers to use cash earnings rather than accrual-based earnings to estimate its offering price, and that it estimates the total valuation of Beta to be equal to the present value of cash-based earnings (rather than excess earnings) discounted over five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.) Compute (a) an offering price based on the information above that Alpha might be willing to pay, and (b) the amount of goodwill included in that price.

Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Beta Company Book Values Estimated Market Values Total identifiable assets $589,600 $799,500 Total liabilities 294,300 348,700 Owners' equity $295,300 Cumulative total net cash earnings for the past five years of $884,400 includes extraordinary cash gains of $62,600 and nonrecurring cash losses of $49,900. Alpha Company expects a return on its investment of 12%. Assume that Alpha prefers to use cash earnings rather than accrual-based earnings to estimate its offering price, and that it estimates the total valuation of Beta to be equal to the present value of cash-based earnings (rather than excess earnings) discounted over five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.) Compute (a) an offering price based on the information above that Alpha might be willing to pay, and (b) the amount of goodwill included in that price.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter5: The Income Statement And The Statement Of Cash Flows

Section: Chapter Questions

Problem 13P: Statement of Cash Flows The following are Mueller Companys cash flow activities: a. Net income,...

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Presented below are data taken from the records of Sheffield Company. December 31,2020 December 31,2019 Cash $15,100 $7,900 Current assets other than cash 85,800 59,800 Long-term investments 10,100 53,000 Plant assets 335,200 214,500 $446,200 $335,200 Accumulated depreciation $20,200 $40,200 Current liabilities 39,600 22,000 Bonds payable 75,800 –0– Common stock 252,800 252,800 Retained earnings 57,800 20,200 $446,200 $335,200 Additional information: 1. Held-to-maturity debt securities carried at a cost of $42,900 on December 31, 2019, were sold in 2020 for $33,600. The loss (not unusual) was incorrectly charged directly to Retained Earnings. 2. Plant assets that cost $49,600 and were 80% depreciated were sold during 2020 for $7,900. The loss was incorrectly charged directly to Retained Earnings. 3. Net income as reported on the…