Goodwill Oak Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2016,...
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Accounting
Goodwill
Oak Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2016, is as follows:
Cash
$46,000
Current liabilities
$58,000
Accounts receivable
70,000
Bonds payable
176,000
Inventory
100,000
Common stock
240,000
Property, plant, and equipment (net)
580,000
Retained earnings
322,000
$796,000
$796,000
At December 31, 2016, Oak discovered the following about EKC:
No allowance for uncollectible accounts has been established. An allowance of $4,400 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 $158,000.
The fair value of the property, plant, and equipment (net) is $700,000.
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 $1,300,600 for EKC.
$
2. Why would the book value of a company's identifiable net assets differ from its market value?
Answer & Explanation
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