Goodwill
Response to the following problem:
The Elm Company is considering purchasing the EKC Company. The balance sheet of the EKC Company at December 31, 2010, is as follows:
|
Cash
|
$ 50,000
|
Current liabilities
|
$ 60,000
|
|
Accounts receivable
|
70,000
|
Bonds payable
|
200,000
|
|
Inventory
|
120,000
|
Common stock
|
300.000
|
|
Property, plant, and equipment (net)
|
600.000
|
Retained earnings
|
280,000
|
|
|
$840,000
|
|
$840,000
|
At December 31, 2010, the Elm Company discovered the following about the EKC Company:
1. No allowance for uncollectible accounts has been established. An allowance of $5,000 is considered appropriate.
2. The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Elm. The FIFO inventory valuation of the December 31, 2010 ending inventory would be $180,000.
3. The fair value of the property, plant, and equipment (net) is $730,000.
4. The company has an unrecorded patent that is worth $120,000.
5. The book values of the current liabilities and bonds payable are the same as their market values.
Required
Compute the value of the goodwill if the Elm Company pays $1,350,000 for EKC.