Goodwill

Composite Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2016, is as follows:

Cash	$56,000		Current liabilities	$65,000
Accounts receivable	71,000		Bonds payable	154,000
Inventory	110,000		Common stock	200,000
Property, plant, and equipment (net)	650,000		Retained earnings	468,000
	$887,000			$887,000

At December 31, 2016, Composite discovered the following about EKC:

No allowance for uncollectible accounts has been established. An allowance of $4,200 is considered appropriate.

The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Composite. The FIFO inventory valuation of the December 31, 2016, ending inventory would be $172,000.

The fair value of the property, plant, and equipment (net) is $760,000.

The company has an unrecorded patent that is worth $100,000.

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 Composite pays $1,425,800 for EKC.

$

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

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