Question
James Company is interested in computing the goodwill to be recognized in the purchase of XYZ Company in January 2017. The following information was taken
James Company is interested in computing the goodwill to be recognized in the purchase of XYZ Company in January 2017. The following information was taken from the records of ABC (see picture below):
Goodwill is measured by capitalizing excess earnings at 40% with normal return on average net assets at 10%. The net assets are fairly valued at January 2017. What is the purchase price of XYZ Company?
Net Income during the year Net Assets, end of Year
2012 360,000 1,600,000
2013 388,000 1,800,000
2014 288,000 1,900,000
2015 380,000 2,000,000
2016 394,000 2,100,000
= 1,810,000 = 9,400,000
A. 2,535,000
B. 2,100,000
C. 2,315,000
D. 2,305,000
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