Compute the amount of goodwill credited to co a

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Question - Companies A and B decide to consolidate. Asset and estimated annual earnings contributions are as follows:

 

Co. A

Co. B

Total

Net Asset Contribution

P300,000

P400,000

P700,000

Estimated Annual Earnings Contribution

50,000

80,000

130,000

Shareholders of the two companies agree that a single class of shares be issued, that their contributions be measured by net assets plus allowances for goodwill, and that 10% be considered as a normal rate of return. Earnings in excess of the normal rate of return shall be capitalized at 20% in calculating goodwill. It was also agreed that the authorized capital stock of the new corporation shall be 20,000 shares with a par value of P100 per share.

Required - Compute the amount of goodwill credited to Co. A, and the total contribution of Co. B (net assets plus goodwill)?

a. P100,000; P400,000

b. P100,000; P600,000

c. P150,000; P500,000

d. P200,000, P600,000

Reference no: EM133070567

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