Meck Company is considering the acquisition of another entity. The following data relate to the acquiree: Shareholders' equity 5,000,000 Earnings for prior three years 1,500,000 The acquiree has a valuable patent which is not recorded. If the entity is sold, the patent would be transferred to the buyer for P500,000. Other assets are properly appraised. The patent has a remaining life of 5 years. The earnings of the entity are expected to increase 10% more than the average earnings of the past three years before taking into consideration the amortization of the patent cost. Compute for the goodwill under the following methods: 1. Average future earnings are capitalized at 8% 2. goodwill is measured at the average excess earnings capitalized at 10% with normal rate at 8%. 3. Goodwill is measured at the present value of the average excess earnings discounted at 10% for four years with normal rate of 8%. The present value of an ordinary annuity of 1 for 4 years at 10% is 3.17.
Meck Company is considering the acquisition of another entity. The following data relate to the acquiree: Shareholders' equity 5,000,000 Earnings for prior three years 1,500,000 The acquiree has a valuable patent which is not recorded. If the entity is sold, the patent would be transferred to the buyer for P500,000. Other assets are properly appraised. The patent has a remaining life of 5 years. The earnings of the entity are expected to increase 10% more than the average earnings of the past three years before taking into consideration the amortization of the patent cost. Compute for the goodwill under the following methods: 1. Average future earnings are capitalized at 8% 2. goodwill is measured at the average excess earnings capitalized at 10% with normal rate at 8%. 3. Goodwill is measured at the present value of the average excess earnings discounted at 10% for four years with normal rate of 8%. The present value of an ordinary annuity of 1 for 4 years at 10% is 3.17.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter12: Intangibles
Section: Chapter Questions
Problem 7P: Hamilton Companys balance sheet on January 1, 2019, was as follows: Korbel Company is considering...
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Transcribed Image Text:Meck Company is considering the acquisition of another entity. The following data relate to the acquiree:
Shareholders' equity
5,000,000
Earnings for prior three years
1,500,000
The acquiree has a valuable patent which is not recorded. If the entity is sold, the patent would be transferred to the buyer for P500,000.
Other assets are properly appraised. The patent has a remaining life of 5 years. The earnings of the entity are expected to increase 10%
more than the average earnings of the past three years before taking into consideration the amortization of the patent cost.
Compute for the goodwill under the following methods:
1. Average future earnings are capitalized at 8%
2. goodwill is measured at the average excess earnings capitalized at 10% with normal rate at 8%.
3. Goodwill is measured at the present value of the average excess earnings discounted at 10% for four years with normal rate of 8%.
The present value of an ordinary annuity of 1 for 4 years at 10% is 3.17.
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