L09-6 PROBLEM 9.6A Accounting for Goodwill Instructions Explain whether each of th intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized, if any. Explain your reasoning. Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in the Dubuque area, management plans to acquire existing service stations and convert them into Kivi outlets. Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented as follows. Estimated normal rate of return on net assets Fair value of net identifiable assets. Actual average net income for past five years Joe's Garage Gas N' Go 20% $950,000 20% $980,000 220,000 275,000 L09-4 PROBLEM 9.7A Alternative Depreciation Methods Instructions a. Compute an estimated fair value for any goodwill associated with Kivi purchasing Joe's Garage. Base your computation upon an assumption that successful service stations typically sell at about 9.25 times their annual earnings. b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an assumption that Kivi's management expects excess earnings to continue for four years. c. Many of Kivi's existing service stations are extremely profitable. If Kivi acquires Joe's Garage or Gas N' Go, should it also record the goodwill associated with its existing locations? Explain. Thaxton, Inc., purchased a truck to use for deliveries and is attempting to determine how much depreciation expense would be recognized under three different methods. The truck cost $20,000 and is expected to have a value of $4,000 at the end of its 5-year life. The truck is expected to be used at the rate of 10,000 miles in the first year, 20,000 miles in the second and third years, and 15.000 miles in each of the fourth and fifth years. wil47937_cb099_390-433.indd 426 Problem Set B L09-2, L09-3, L09-5 PROBLEM 9.8A Depreciation and Disposal of Plant and Intangible Assets 09/10/19 01:13 PM Final PDF to printer 427 Instructions a. Determine the amount of depreciation expense that Thaxton should expect to recognize under each of the following depreciation methods in the first and second years of the truck's useful life. A full year's depreciation will be recognized in the first year the truck is used. 1. Straight-line. 2. Double-declining-balance. 3. Units-of-output (based on miles). b. Prepare the plant assets section of the balance sheet at the end of the second year of the asset's useful life under the straight-line method, assuming the truck is the only plant asset owned by Thaxton, Inc. c. By which of the three methods is it not possible to determine the actual amount of deprecia- tion expense prior to the end of each year? What uncertainty causes this to be true? During the current year, Rothchild, Inc.. purchased two assets that are described as follows. 461 Heavy Equipment 12811 Purchase price, $275,000. Expected to be used for 10 years, with a residual value at the end of that time of $50,000. Expenditures required to recondition the equipment and prepare it for use, $75,000. Patent Purchase price, $75,000. Expected to be used for five years, with no value at the end of that time.