Estimating Goodwill and Valuation Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Beta Company Estimated Book Values Total identifiable assets $585,000 Total liabilities 320,000 Owners' equity $265,000 Market Values $750,000 320,000 Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $48,000. Alpha Company expects a return on its investment of 15%. 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.) Required: 1. 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. 2. Compute the amount of goodwill actually recorded, assuming the negotiations result in a final purchase price of $625,000 cash.

Estimating Goodwill and Valuation Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta: Beta Company Estimated Book Values Total identifiable assets $585,000 Total liabilities 320,000 Owners' equity $265,000 Market Values $750,000 320,000 Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $48,000. Alpha Company expects a return on its investment of 15%. 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.) Required: 1. 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. 2. Compute the amount of goodwill actually recorded, assuming the negotiations result in a final purchase price of $625,000 cash.

Name: Estimating Goodwill and ValuationAlpha Company is considering the pur
Uploaded: 2024-03-05T11:47:04.000Z
Channel: Bartleby
Description: Estimating Goodwill and ValuationAlpha Company is considering the purchase of Beta Company.Alpha has collected the following data about Beta:Beta Company EstimatedBook ValuesTotal identifiable assets $585,000Total liabilities320,000Owners' equity$26

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $82,600 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $31,000 $53,000 Year 2 19,000 41,000 Year 3 9,000 31,000 Year 4 (1,000) 21,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 a. Assuming that the desired rate of return is 20%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.…
ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value Current Assets $50,000 $ 50,000 Building 80,000 100,000 Equipment 40,000 50,000 Liabilities 30,000 30,000 What is the amount recorded by ACME for the Building? a. $110,000 b. $20,000 c. $80,000 d. $100,000
Help me out please
Plant acquisitions for selected companies are as follows. 1. Novak Industries Inc. acquired land, buildings, and equipment from a bankrupt company, Torres Co., for a lump-sum price of $1.050,000. At the time of purchase, Torres's assets had the following book and appraisal values. Land Buildings Equipment Land Book Values Buildings Equipment Cash $300,000 375,000 450,000 To be conservative, the company decided to take the lower of the two values for each asset acquired. The following entry was made. 225,000 Appraisal Values $225,000 525,000 450,000 375,000 450,000 1,050,000 SUPPORT
ACME Co. paid $110,000 for the net assets of Comb Corp. At the time of the acquisition the following information was available related to Comb's balance sheet: Book Value Fair Value Current Assets $50,000 $ 50,000 Building 80,000 100,000 Equipment 40,000 50,000 Liabilities 30,000 30,000 What is the amount recorded by ACME for the Building? a. $110,000 b. $20,000 c. $80,000 d. $100,000
Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items. Patent with 4 remaining years of legal life $38,600 Goodwill 36,100 Dynamo’s financial condition just prior to the acquisition of these assets is shown in the following statements model. Balance Sheet Income Statement Assets = Liabilities + Stockholders’ Equity Revenue − Expenses = Net Income Statement of Cash Flows Cash + Patent + Goodwill 92,500 + NA + NA = NA + 92,500 NA − NA = NA NA Required Compute the annual amortization expense for these items. Show the acquisition of the intangible assets and the related amortization expense for Year 1 in a horizontal statements model. Prepare the journal entries to record the acquisition of the intangible assets and the related amortization for year 1.
Additional information (a) The entity sold some tangible non-current assets, which had a net book value of $200 million. The cost of sales figure includes a loss of $10 million on this disposal. (b) Cost of sales is arrived at after charging depreciation on the tangible non-current assets of $42 million. (c) Dividends paid during the year were $55,000. IMPORTANT: if your answer is 100,000 for this question please write 100 and IGNORE 000 while writing answer. If you write answer with 000 it will be marked as incorrect Find cashflow from Operations
Net Present Value Method The following data are accumulated by Paxton Company in evaluating the purchase of $98,400 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $37,000 $63,000 Year 2 23,000 49,000 Year 3 11,000 37,000 Year 4 (1,000) 25,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 a. Assuming that the desired rate of return is 20%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value.…
None
Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items.Patent with 4 remaining years of legal life $32,200Goodwill 43,700Dynamo’s financial condition just prior to the acquisition of these assets is shown in the following statements model.Balance Sheet Income StatementAssets= Liabilities +Stockholders’Equity Revenue − Expenses = Net IncomeStatementof CashCash Flows + Patent + Goodwill92,000 + NA + NA = NA + 92,000 NA − NA = NA NARequireda. Compute the annual amortization expense for these items.b. Show the acquisition of the intangible assets and the related amortization expense for Year 1 in a horizontal statements model.c. Prepare the journal entries to record the acquisition of the intangible assets and the related amortization for year
Big Company purchased all of the assets of Small Company 5 years ago recording Goodwill at the time of the purchase. On 1/1 of the current year they evaluate the Goodwill for impairment. Data Goodwill recorded at time of purchase $150,000 Book Value of the Net Assets of Small Company on 1/1 $900,000 Estimated Fair Value of Small Company on 1/1 $850,000 Undiscounted Estimated Cash flow of Small Company on 1/1 $890,000 What amount of loss on impairment of goodwill should they record on 1/1 O Loss on Impairment of $40,000. Loss on Impairment of $ 0. Loss on Impairment of $ 10,00. O Loss on Impairment of $ 50,000.