Excelsior Company's balance sheet on December 31, 1990, is as follows:

In Excelsior Company's industry, earnings average \(12 \%\) of common stockholders' equity. Excelsior Company, however, is expected to earn \(\$ 110,250\) annually. The owners of Excelsior Company believe that the balance sheet amounts are reasonable estimates of fair market values except for goodwill. In discussing a plan to sell the company, they argue that goodwill should be recognized by capitalizing the amount of earnings above average at a rate of \(15 \%\). On the other hand, the prospective purchaser argues that goodwill should be valued at five times the earnings above average.
\section*{Required}
1. Calculate the amount of goodwill claimed by Excelsior Company's owners.
2. Calculate the amount of goodwill according to the purchaser.
3. Suppose the purchaser finally agrees to pay the full price requested by Excelsior Company's owners. If the expected earnings level is obtained and the goodwill is amortized over the longest permissible time period, what will be the net income for the first year after the company is purchased?
4. If the purchaser pays the full price requested by Excelsior Company's owners, what percentage of the purchaser's investment will be earned as net income the first year?

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Cash Merchandise inventory. Buildings Accumulated depreciation Land... Total assets Accounts payable. Long-term note payable. Common stock. Retained earnings. Total liabilities and owners' equity. $ 94,500 136,500 420,000 (110,250) 236,250 $777,000 $ 63,000 162,750 393,750 157,500 $777,000