Stillman Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows:
Question:
Stillman Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows:
| Cash | $49,000 | Current liabilities | $53,000 | |
| Accounts receivable | 78,000 | Bonds payable | 164,000 | |
| Inventory | 120,000 | Common stock | 205,000 | |
| Property, plant, and equipment (net) | 650,000 | Retained earnings | 475,000 | |
| $897,000 | $897,000 |
At December 31, 2019, Stillman discovered the following about EKC:
a. No allowance for uncollectible accounts has been established. An allowance of $5,900 is considered appropriate.
b. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Stillman. The FIFO inventory valuation of the December 31, 2019, ending inventory would be $175,000.
c. The fair value of the property, plant, and equipment (net) is $780,000.
d. The company has an unrecorded patent that is worth $100,000.
e. 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 Stillman pays $1,459,100 for EKC.
2. Next Level Why would the book value of a company's identifiable net assets differ from its market value?
Acquirer paid too much. Assets listed on the balance sheet at amounts different from their market value. Identifiable intangible assets may be unrecorded or undervalued. All of the choices are correct.
Expert Answer:
1 Good will Business Purchase value Fair value of Net Assets Fair value of net assets ... View the full answer
