Birch Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows: Cash $51,000 Current liabilities $56,000 Accounts receivable 76,000 Bonds payable 194,000 Inventory 130,000 Common stock 290,000 Property, plant, and equipment (net) 630,000 Retained earnings 347,000 $887,000 $887,000 At December 31, 2019, Birch discovered the following about EKC: No allowance for uncollectible accounts has been established. An allowance of $5,200 is considered appropriate. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Birch. The FIFO inventory valuation of the December 31, 2019, ending inventory would be $181,000. The fair value of the property, plant, and equipment (net) is $780,000. The company has an unrecorded patent that is worth $100,000. The book values of the current liabilities and bonds payable are the same as their market values. Required: 1. Compute the value of the goodwill if Birch pays $1,352,800 for EKC. $ fill in the blank 1 2. Next Level Why would the book value of a company's identifiable net assets differ from its market value? Birch Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows: Cash $51,000 Current liabilities $56,000 Accounts receivable 76,000 Bonds payable 194,000 Inventory 130,000 Common stock 290,000 Property, plant, and equipment (net) 630,000 Retained earnings 347,000 $887,000 $887,000 At December 31, 2019, Birch discovered the following about EKC: No allowance for uncollectible accounts has been established. An allowance of $5,200 is considered appropriate. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Birch. The FIFO inventory valuation of the December 31, 2019, ending inventory would be $181,000. The fair value of the property, plant, and equipment (net) is $780,000. The company has an unrecorded patent that is worth $100,000. The book values of the current liabilities and bonds payable are the same as their market values. Required: 1. Compute the value of the goodwill if Birch pays $1,352,800 for EKC. $ fill in the blank 1 2. Next Level Why would the book value of a company's identifiable net assets differ from its market value? please choose from: Acquirer paid too much Assets listed on the balance sheet at amounts different from their market value Identifiable intangible assets may be unrecorded or undervalued All of the choices
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Birch Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows:
| Cash | $51,000 | Current liabilities | $56,000 | |
| Accounts receivable | 76,000 | Bonds payable | 194,000 | |
| Inventory | 130,000 | Common stock | 290,000 | |
| Property, plant, and equipment (net) | 630,000 | 347,000 | ||
| $887,000 | $887,000 |
At December 31, 2019, Birch discovered the following about EKC:
- No allowance for uncollectible accounts has been established. An allowance of $5,200 is considered appropriate.
- The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Birch. The FIFO
inventory valuation of the December 31, 2019, ending inventory would be $181,000. - The fair value of the property, plant, and equipment (net) is $780,000.
- The company has an unrecorded patent that is worth $100,000.
- The book values of the current liabilities and bonds payable are the same as their market values.
Required:
1. Compute the value of the
$ fill in the blank 1
2. Next Level Why would the book value of a company's identifiable net assets differ from its market value?
Birch Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows:
| Cash | $51,000 | Current liabilities | $56,000 | |
| Accounts receivable | 76,000 | Bonds payable | 194,000 | |
| Inventory | 130,000 | Common stock | 290,000 | |
| Property, plant, and equipment (net) | 630,000 | Retained earnings | 347,000 | |
| $887,000 | $887,000 |
At December 31, 2019, Birch discovered the following about EKC:
- No allowance for uncollectible accounts has been established. An allowance of $5,200 is considered appropriate.
- The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Birch. The FIFO inventory valuation of the December 31, 2019, ending inventory would be $181,000.
- The fair value of the property, plant, and equipment (net) is $780,000.
- The company has an unrecorded patent that is worth $100,000.
- The book values of the current liabilities and bonds payable are the same as their market values.
Required:
1. Compute the value of the goodwill if Birch pays $1,352,800 for EKC.
$ fill in the blank 1
2. Next Level Why would the book value of a company's identifiable net assets differ from its market value?
please choose from:
Acquirer paid too much
Assets listed on the balance sheet at amounts different from their market value
Identifiable intangible assets may be unrecorded or undervalued
All of the choices
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