Narnia company have the following data relative to a certain entity in determining the amount to be paid for net assets and goodwill: Assets at fair value before goodwill 3,900,000 Liabilities 1,350,000 Shareholders’ equity 2,550,000 Average earnings for five years amounted to 375,000 and a return of 8% on net assets is considered normal. Compute the goodwill if excess earnings is capitalized at 15%.

Narnia company have the following data relative to a certain entity in determining the amount to be paid for net assets and goodwill: Assets at fair value before goodwill 3,900,000 Liabilities 1,350,000 Shareholders’ equity 2,550,000 Average earnings for five years amounted to 375,000 and a return of 8% on net assets is considered normal. Compute the goodwill if excess earnings is capitalized at 15%.

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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Question

Narnia company have the following data relative to a certain entity in determining the amount to be paid for net assets and goodwill:

Assets at fair value before goodwill 3,900,000

Liabilities 1,350,000

Shareholders’ equity 2,550,000

Average earnings for five years amounted to 375,000 and a return of 8% on net assets is considered normal. Compute the goodwill if excess earnings is capitalized at 15%.

Definition Definition Intangible asset that includes proprietary or intellectual property and brand value of a firm. Goodwill is recorded in the books when a firm purchases another firm and the purchase price is more than the fair value of net identifiable assets of the acquired business. The amount of goodwill is recorded on the asset side of the balance sheet (statement of financial position).

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