Procter & Gamble (P&G) recently acquired a small personal care products company for $50 million. The acquired company's balance sheet showed total assets of $40 million and total liabilities of $15 million. P&G's management team believes that the acquired company's brand name, which was not recorded on its balance sheet, is worth $10 million. How should P&G account for this acquisition on its consolidated balance sheet? What is the amount of goodwill, if any, that P&G should recognize? How might this goodwill be treated in future accounting periods? General Electric (GE) is considering introducing a new line of energy-efficient refrigerators. The company estimates that the fixed costs for this product line would be $5 million per year, and the variable cost per unit would be $300. GE's market research suggests they could sell these refrigerators for $500 each. How many units would GE need to sell annually to break even? If GE wants to achieve a target profit of $2 million per year, how many units would they need to sell? What would be the margin of safety if GE expects to sell 40,000 units per year? How might this information influence GE's decision to launch this new product line?
Procter & Gamble (P&G) recently acquired a small personal care products company for $50 million. The acquired company's balance sheet showed total assets of $40 million and total liabilities of $15 million. P&G's management team believes that the acquired company's brand name, which was not recorded on its balance sheet, is worth $10 million. How should P&G account for this acquisition on its consolidated balance sheet? What is the amount of goodwill, if any, that P&G should recognize? How might this goodwill be treated in future accounting periods? General Electric (GE) is considering introducing a new line of energy-efficient refrigerators. The company estimates that the fixed costs for this product line would be $5 million per year, and the variable cost per unit would be $300. GE's market research suggests they could sell these refrigerators for $500 each. How many units would GE need to sell annually to break even? If GE wants to achieve a target profit of $2 million per year, how many units would they need to sell? What would be the margin of safety if GE expects to sell 40,000 units per year? How might this information influence GE's decision to launch this new product line?
Chapter16: Accounting Periods And Methods
Section: Chapter Questions
Problem 19CE
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Transcribed Image Text:Procter & Gamble (P&G) recently acquired a small personal care
products company for $50 million. The acquired company's balance
sheet showed total assets of $40 million and total liabilities of $15
million. P&G's management team believes that the acquired
company's brand name, which was not recorded on its balance
sheet, is worth $10 million. How should P&G account for this
acquisition on its consolidated balance sheet? What is the amount
of goodwill, if any, that P&G should recognize? How might this
goodwill be treated in future accounting periods? General Electric
(GE) is considering introducing a new line of energy-efficient
refrigerators. The company estimates that the fixed costs for this
product line would be $5 million per year, and the variable cost per
unit would be $300. GE's market research suggests they could sell
these refrigerators for $500 each. How many units would GE need to
sell annually to break even? If GE wants to achieve a target profit of
$2 million per year, how many units would they need to sell? What
would be the margin of safety if GE expects to sell 40,000 units per
year? How might this information influence GE's decision to launch
this new product line?
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