Net income figures for Belgian Ltd. are as follows: 2016$75,000 .............................. 2019$87,000 2017$53,000 .............................. 2020$69,000 2018$84,000 Future

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Net income figures for Belgian Ltd. are as follows:

2016—$75,000 .............................. 2019—$87,000
2017—$53,000 .............................. 2020—$69,000
2018—$84,000

Future income is expected to continue at the average amount of the past five years. The company’s identifiable net assets are appraised at $460,000 on December 31, 2020. The business is to be acquired by Mooney Corp. in early 2021. The normal rate of return on net assets for the industry is 7%.


Instructions

What amount should Mooney Corp. pay for goodwill, and for Belgian Ltd. as a whole, if:

a. goodwill is equal to average excess earnings capitalized at 23%?

b. a perpetual 18% return is expected on any amount paid for goodwill?

c. goodwill is equal to five years of excess earnings?

d. goodwill is equal to the present value of five years of excess earnings capitalized at 15%? Show calculations using factor Table A.4, a financial calculator, or Excel function PV. Round final amounts to the nearest dollar.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
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Related Book For  book-img-for-question

Intermediate Accounting Volume 1

ISBN: 978-1119496496

12th Canadian edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy

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