Only answer part2 Legume Company is trying to decide whether or not to acquirePeanut Inc. The following balance sheet for Peanut Inc. providesinformation about book values. Estimated market values are alsolisted, based upon Legume Company's appraisals.Peanut Inc. Peanut Ic.Book Values Market ValuesCurrent assets$260,000 S 260,000Property, plant & equipment(net)650,000740,000Total assets$910,000 SI,000,000Total liabilities$400,000$ 400,000Common stock, $10 par value 160,000Retained earnings_350,000Total liabilities and equities$910,000Legume Company expects that Peanut will earn approximately$150,000 per year in net income over the next five years. Thisincome is higher than the 12% annual return on tangible assetsconsidered to be the industry "norm."Part 1:Compute an estimation of goodwill based on the informationabove that Legume might be willing to pay (include in itspurchase price), under each of the following independentscenarios:A. Legume is willing to pay for excess earnings for anexpected life of five years (undiscounted). What amountof goodwill would Pasion be willing to pay?B. Legume is willing to pay for excess earnings for anexpected life of five years, which should be capitalized atthe industry normal rate of return. What amount ofgoodwill would Pasion be willing to pay?C. Excess earnings are expected to last indefinitely, butLegume demands a higher rate of return of 20% becauseof the risk involved. What amount of goodwill wouldPasion be willing to pay?Part 2:Determine the amount of goodwill to be recorded on the booksif Legume pays $800,000 cash and assumes Peanut's liabilities.

Calculation of goodwill in Acqusition For Calculation of goodwill it taken consider the purchase…

information about book values. Estimated market values are also listed, based upon Legume Company's appraisals. Реaпu Inc. Peaпut Inc. Book Values Market Values Current assets $260,000 S 260,000 Property, plant & equipment 650,000 740,000 (пеt) Total assets $910,000 $1,000,000 Total liabilities $400,000 S 400,000 Common stock, S10 par value 160,000 Retained earnings Total liabilities and equities 350,000 $910,000 Legume Company expects that Peanut will earn approximately $150,000 per year in net income over the next five years. This income is higher than the 12% annual return on tangible assets considered to be the industry "norm." Part 1: Compute an estimation of goodwill based on the information

information about book values. Estimated market values are also listed, based upon Legume Company's appraisals. Реaпu Inc. Peaпut Inc. Book Values Market Values Current assets $260,000 S 260,000 Property, plant & equipment 650,000 740,000 (пеt) Total assets $910,000 $1,000,000 Total liabilities $400,000 S 400,000 Common stock, S10 par value 160,000 Retained earnings Total liabilities and equities 350,000 $910,000 Legume Company expects that Peanut will earn approximately $150,000 per year in net income over the next five years. This income is higher than the 12% annual return on tangible assets considered to be the industry "norm." Part 1: Compute an estimation of goodwill based on the information

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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