Homework Help is Here – Start Your Trial Now!
Business
Accounting
The president of Plain Corp., Joyce Lima, is thinking of purchasing Blue Spruce Corporation. She thinks that the offer sounds fair but she wants to consult a professional accountant to be sure. Blue Spruce is asking for $78,150 in excess of the fair value of the identifiable net assets. Blue Spruce's net income figures for the past five years are as follows: 2019-$64,270 2020-$52,000 2021-$88,430 2022-$83,410 2023-$71,280 The company's identifiable net assets were appraised at $437,900 on December 31, 2023. You have done some initial research on the balloon industry and discovered that the normal rate of return on identifiable net assets is 15%. After analyzing such variables as the stability of past earnings, the nature of the business, and general economic conditions, you have decided that the average excess earnings for the past five years should be capitalized at 20% and that the excess earnings will continue for about six more years. Further research led you to discover that the Happy Balloon Corporation, a competitor of similar size and profitability, was recently sold for $493,400, five times its average yearly earnings of $98,680.

The president of Plain Corp., Joyce Lima, is thinking of purchasing Blue Spruce Corporation. She thinks that the offer sounds fair but she wants to consult a professional accountant to be sure. Blue Spruce is asking for $78,150 in excess of the fair value of the identifiable net assets. Blue Spruce's net income figures for the past five years are as follows: 2019-$64,270 2020-$52,000 2021-$88,430 2022-$83,410 2023-$71,280 The company's identifiable net assets were appraised at $437,900 on December 31, 2023. You have done some initial research on the balloon industry and discovered that the normal rate of return on identifiable net assets is 15%. After analyzing such variables as the stability of past earnings, the nature of the business, and general economic conditions, you have decided that the average excess earnings for the past five years should be capitalized at 20% and that the excess earnings will continue for about six more years. Further research led you to discover that the Happy Balloon Corporation, a competitor of similar size and profitability, was recently sold for $493,400, five times its average yearly earnings of $98,680.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question

Aa.13.

 

The president of Plain Corp., Joyce Lima, is thinking of purchasing Blue Spruce Corporation. She thinks that the offer sounds fair but she wants to consult a professional accountant to be sure. Blue Spruce is asking for $78,150 in excess of the fair value of the identifiable net assets. Blue Spruce's net income figures for the past five years are as follows: 2019-$64,270 2020-$52,000 2021-$88,430 The company's identifiable net assets were appraised at $437,900 on December 31, 2023. You have done some initial research on the balloon industry and discovered that the normal rate of return on identifiable net assets is 15%. After analyzing such variables as the stability of past earnings, the nature of the business, and general economic conditions, you have decided that the average excess earnings for the past five years should be capitalized at 20% and that the excess earnings will continue for about six more years. Further research led you to discover that the Happy Balloon Corporation, a competitor of similar size and profitability, was recently sold for $493,400, five times its average yearly earnings of $98,680. (a) Calculate the following. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Click here to view Table A.4 - PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Blue Spruce Corporation's goodwill and purchase price under excess earnings approach. Goodwill 2022-$83,410 Purchase price 2023-$71,280 Blue Spruce Corporation's goodwill and purchase price under excess earnings approach. Goodwill Purchase price Goodwill ext Blue Spruce Corporation's goodwill and purchase price under number of years method. Purchase price $ $ $ Blue Spruce Corporation's goodwill and purchase price under times average earnings. $ $ $
Transcribed Image Text:The president of Plain Corp., Joyce Lima, is thinking of purchasing Blue Spruce Corporation. She thinks that the offer sounds fair but she wants to consult a professional accountant to be sure. Blue Spruce is asking for $78,150 in excess of the fair value of the identifiable net assets. Blue Spruce's net income figures for the past five years are as follows: 2019-$64,270 2020-$52,000 2021-$88,430 The company's identifiable net assets were appraised at $437,900 on December 31, 2023. You have done some initial research on the balloon industry and discovered that the normal rate of return on identifiable net assets is 15%. After analyzing such variables as the stability of past earnings, the nature of the business, and general economic conditions, you have decided that the average excess earnings for the past five years should be capitalized at 20% and that the excess earnings will continue for about six more years. Further research led you to discover that the Happy Balloon Corporation, a competitor of similar size and profitability, was recently sold for $493,400, five times its average yearly earnings of $98,680. (a) Calculate the following. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Click here to view Table A.4 - PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Blue Spruce Corporation's goodwill and purchase price under excess earnings approach. Goodwill 2022-$83,410 Purchase price 2023-$71,280 Blue Spruce Corporation's goodwill and purchase price under excess earnings approach. Goodwill Purchase price Goodwill ext Blue Spruce Corporation's goodwill and purchase price under number of years method. Purchase price $ $ $ Blue Spruce Corporation's goodwill and purchase price under times average earnings. $ $ $
Expert Solution
steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS