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,...

See similar textbooks

Similar questions

vaibhav subject-Accounting
Novak Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet in order to obtain additional funds for expansion. NOVAK COMPANYBALANCE SHEETFOR THE YEAR ENDED 2020 Current assets Cash $241,500 Accounts receivable (net) 351,500 Inventory (lower-of-average-cost-or-market) 412,500 Equity investments (marketable)-at cost (fair value $131,500) 151,500 Property, plant, and equipment Buildings (net) 581,500 Equipment (net) 171,500 Land held for future use 186,500 Intangible assets Goodwill 91,500 Cash surrender value of life insurance 101,500 Prepaid expenses 23,500 Current liabilities Accounts payable 146,500 Notes payable (due next year) 136,500 Pension obligation 93,500 Rent payable 60,500 Premium on bonds payable 64,500 Long-term liabilities Bonds payable 511,500 Stockholders’ equity Common stock,…
Abe Manufacturing Corp. decided to expand further by purchasing the net assets of ERB Manufacturing Corp. ERB's statement of financial position at December 31, 2023 follows. Assets Receivables Inventory Plant assets (net) Total assets ERB MANUFACTURING CORP. Statement of Financial Position December 31, 2023 Cash 450,000 275,000 1,025,000 $1,960,000 $ 210,000 Liabilities and Equities Accounts payable $ 325,000 Common shares 800,000 Retained earnings 835,000 Total liabilities and equities $1,960,000 An appraisal, agreed to by both parties, indicated that the fair value of the inventory was $320,000 and the fair value of the plant assets was $1,225,000. The fair value of the receivables and payables is equal to the amount reported on the balance sheet. The agreed purchase price was $3 million, and this amount was paid in cash to the owners of ERB. Instructions Calculate the amount of goodwill (if any) implied in the purchase price of $3 million. Show calculations.
Sandhill Co. reported the following information for 2020: Sales revenue $2520000 Cost of goods sold 1748000 Operating expenses 282000 Unrealized holding gain on available-for-sale securities 85700 Cash dividends received on the securities 9200 For 2020, Sandhill would report comprehensive income of A.$85700. B.$499200. C.$575700. D.$584900.
Statement of Cash Flows The following are Mueller Companys cash flow activities: a. Net income, 68,000 b. Increase in accounts receivable, 4,400 c. Receipt from sale of common stock, 12,300 d. Depreciation expense, 11,300 e. Dividends paid, 24,500 f. Payment for purchase of building, 65,000 g. Bond discount amortization, 2,700 h. Receipt from sale of long-term investments at cost, 10,600 i. Payment for purchase of equipment, 8,000 j. Receipt from sale of preferred stock, 20,000 k. Increase in income taxes payable, 3,500 l. Payment for purchase of land, 9,700 m. Decrease in accounts payable, 2,900 n. Increase in inventories, 10,300 o. Beginning cash balance, 18,000 Required: Prepare Mueller Company's statement of cash flows.
Sunland Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet in order to obtain additional funds for expansion. SUNLAND COMPANYBALANCE SHEETFOR THE YEAR ENDED 2020 Current assets Cash $240,500 Accounts receivable (net) 350,500 Inventory (lower-of-average-cost-or-market) 411,500 Equity investments (marketable)-at cost (fair value $130,500) 150,500 Property, plant, and equipment Buildings (net) 580,500 Equipment (net) 170,500 Land held for future use 185,500 Intangible assets Goodwill 90,500 Cash surrender value of life insurance 100,500 Prepaid expenses 22,500 Current liabilities Accounts payable 145,500 Notes payable (due next year) 135,500 Pension obligation 92,500 Rent payable 59,500 Premium on bonds payable 63,500 Long-term liabilities Bonds payable 510,500 Stockholders’ equity Common…
Saved Spartan Sportswear's current assets consist of cash, short-term investments, accounts receivable, and inventory. The following data were abstracted from a recent financial statement Inventory Total assets $180,000 $720,000 Current ratio 2.75 Acid-test ratio 1.5 Debt to equity ratio 1.4 Required: Compute the long-term assets for Spartan: sposse -bu0
The following is information for Concord Corp. for the year ended December 31, 2020: Sales revenue Unrealized gain on FV-OCI equity investments Interest income Cost of goods sold Selling expenses Administrative expenses Dividend revenue $1,450,000 40,000 Concord Corp. Statement of Financial Performance 5,000 870,000 72,500 46,000 25,000 Loss on inventory due to decline in net realizable value Loss on disposal of equipment Depreciation expense related to buildings omitted by mistake in 2019 Retained earnings at December 31, 2019 Loss from expropriation of land Dividends declared The effective tax rate is 35% on all items. Concord prepares financial statements in accordance with IFRS. The FV-OCI equity investments trade on the stock exchange. Gains/losses on FV-OCI investments are not recycled through net income. $76,000 25,000 53,000 980,000 58,000 43,000 Prepare a multiple-step statement of financial performance for 2020, showing expenses by function. Ignore calculation of EPS.
Selected comparative statement data for Carla Vista Corporation are presented below. All balance sheet data are as at December 31. Net sales Profit for the year Total assets Total common shareholders' equity (a) Your answer is correct. Asset turnover (b) eTextbook and Media Your answer is incorrect. 2024 $850,000 Return on assets 84,000 615,000 450,000 Calculate asset turnover for 2024. (Round answer to 1 decimal place, e.g. 12.5.) 2023 $810,000 67,000 525,000 13.7 % 320,000 1.4 times Calculate return on assets for 2024. (Round answer to 1 decimal place, e.g. 12.5.)
Pharoah Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet in order to obtain additional funds for expansion. PHAROAH COMPANYBALANCE SHEETFOR THE YEAR ENDED 2020 Current assets Cash $232,000 Accounts receivable (net) 342,000 Inventory (lower-of-average-cost-or-market) 403,000 Equity investments (marketable)-at cost (fair value $122,000) 142,000 Property, plant, and equipment Buildings (net) 572,000 Equipment (net) 162,000 Land held for future use 177,000 Intangible assets Goodwill 82,000 Cash surrender value of life insurance 92,000 Prepaid expenses 14,000 Current liabilities Accounts payable 137,000 Notes payable (due next year) 127,000 Pension obligation 84,000 Rent payable 51,000 Premium on bonds payable 55,000 Long-term liabilities Bonds payable 502,000 Stockholders’ equity Common stock,…
Shamrock Company has decided to expand its operations. The bookkeeper recently completed the following balance sheet in order to obtain additional funds for expansion. SHAMROCK COMPANYBALANCE SHEETFOR THE YEAR ENDED 2020 Current assets Cash $242,000 Accounts receivable (net) 352,000 Inventory (lower-of-average-cost-or-market) 413,000 Equity investments (marketable)-at cost (fair value $132,000) 152,000 Property, plant, and equipment Buildings (net) 582,000 Equipment (net) 172,000 Land held for future use 187,000 Intangible assets Goodwill 92,000 Cash surrender value of life insurance 102,000 Prepaid expenses 24,000 Current liabilities Accounts payable 147,000 Notes payable (due next year) 137,000 Pension obligation 94,000 Rent payable 61,000 Premium on bonds payable 65,000 Long-term liabilities Bonds payable 512,000 Stockholders’ equity Common…
Prepare the Cash Flow statement of concha ltd for the year ended 31 December 2023 Sales 2484000 Cost of Sales -1212000 Gross profit 1272000 Selling and admin expenses -504000 Operating profit 768000 Interest expense -48000 Profit before tax 720000 Company tax -192000 Profit after tax 528000 Statement of financial position as at 31 december 2023: [2023] Non current asset 2244000 Land and buildings 1320000 Plant and machinery 744000 Investments 180000 Current asset 648000 Inventories 288000 Accounts receivable 306000 Cash and cash equivalents 54000 Total asset 2892000 EQUITY AND LIABILITIES (2023) Equity 1872000 Ordinary share capital (300000 shares) 1200000 Retained earnings 672000 Non current liabilities 480000 Long term loan 480000 Accounts payable 288000 Company tax payable 96000 Dividends payable 156000 Total equity and liabilities 2892000 Statement of financial position as at 31 december 2022: [2022] Non current asset 176400 Land and buildings 1128000 Plant and machinery…