Niagara Company is contemplating acquiring Toronto, Inc. on January 1, 2020. The information on Toronto's profit and net assets for the last five years are as follows: Profit Net Assets 2019 P 4,000,000 P20,200,000 2018 3,200,000 20,000,000 2017 3,000,000 18,500,000 2016 3,800,000 17,900,000 2015 2,500,000 15,600,000 It is agreed that Niagara is willing to pay for goodwill measured by capitalizing at 40% excess of the average profits over normal return on net assets. The normal return on average net assets for the industry to which Toronto belongs is 10%. How much should Niagara Company pay to Toronto, Inc. in the acquisition of the latter's net assets? A. 20,200,000 B. 22,080,000 C. 23,400,000 D. 23,840,000

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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Niagara Company is contemplating acquiring Toronto, Inc. on January 1, 2020. The information on Toronto's profit and net assets for the last five years are as follows:

Profit Net Assets
2019 P 4,000,000 P20,200,000
2018 3,200,000 20,000,000
2017 3,000,000 18,500,000
2016 3,800,000 17,900,000
2015 2,500,000 15,600,000

It is agreed that Niagara is willing to pay for goodwill measured by capitalizing at 40% excess of the average profits over normal return on net assets. The normal return on average net assets for the industry to which Toronto belongs is 10%.

How much should Niagara Company pay to Toronto, Inc. in the acquisition of the latter's net assets?

A. 20,200,000

B. 22,080,000

C. 23,400,000

D. 23,840,000

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