Goodwill

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

Cash	$47,000		Current liabilities	$64,000
Accounts receivable	75,000		Bonds payable	241,000
Inventory	100,000		Common stock	315,000
Property, plant, and equipment (net)	630,000		Retained earnings	232,000
	$852,000			$852,000

At December 31, 2016, Oak 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 Oak. The FIFO inventory valuation of the December 31, 2016, ending inventory would be $166,000.

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 Oak pays $1,263,800 for EKC.

$

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

Acquirer paid too much

assets on balance sheet differ from market value

identifiable intangible assets may ne underrecoreded or undervalued

all of these choices