Chapter 12, Problem 17E

Company is considering purchasing EKC Company. EKC’s balance sheet at December 31, 2019, is as follows:

At December 31, 2019, Elm discovered the following about EKC:

1. a. No allowance for uncollectible accounts has been established. An allowance of $5,000 is considered appropriate.
2. b. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Elm. The FIFO inventors^-valuation of the December 31, 2019, ending inventors^-would be $180,000.
3. c. The fair value of the property, plant, and equipment (net) is $730,000.
4. d. The company has an unrecorded patent that is worth $120,000.
5. e. The book values of the current liabilities and bonds payable are the same as their market values.

Required:

1. Compute the value of the goodwill if Elm pays $1,350,000 for EKC.

2. Next Level Why would the book value of a company’s identifiable net assets differ from its market value?