Valix Finacc vol 1 Problem 20-27

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 20 Problem 20-27

1.  Share capital                                                                                                          2,000,000

     Retained earnings                                                                                                  1,500,000

     Total shareholders’ equity                                                                                      3,500,000

     Less: Recorded goodwill                                                                                        1,000,000

     Net assets before goodwill                                                                                    2,500,000

     Average earnings   (1,200,000 + 150,000 / 3)                                                              450,000

     Less: Normal earnings (10% x 2,500,000)                                                                     250,000

     Excess earnings                                                                                                          200,000

     Divide by                                                                                                                         16%

     Goodwill                                                                                                                1,250,000

2.  Net assets before goodwill                                                                         2,500,000

    Goodwill                                                                                                                 1,250,000

     Purchase price                                                                                                        3,750,000