Question

Goodwill

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

Cash	$60,000		Current liabilities	$51,000
Accounts receivable	70,000		Bonds payable	151,000
Inventory	140,000		Common stock	255,000
Property, plant, and equipment (net)	630,000		Retained earnings	443,000
	$900,000			$900,000

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

1. No allowance for uncollectible accounts has been established. An allowance of $5,800 is considered appropriate.
2. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Corman. The FIFO inventory valuation of the December 31, 2016, ending inventory would be $201,000.
3. The fair value of the property, plant, and equipment (net) is $780,000.
4. The company has an unrecorded patent that is worth $100,000.
5. 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 Corman pays $1,408,200 for EKC.

$

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

Answer 1

computation of value the goodwill

compute fair value of all the net assets

particulars	amount	amount
Assets
cash		60000
Account receivable	70000
Less allowances	5800	64200
inventory		201000
property , plant and equipment		780000
total Assets		1105200
Less liabilities
current liabilities	51000
bonds payable	151000	202000
Net assets		903200

purchase consideration = 1408200

goodwill = purchase consideration - fair value of net assets

= 1408200 - 903200

= 505000

2) the assets listed in the balance sheet amount differ from the market value is the correct option