Reference no: EM132829224

James Company is interested in computing the goodwill to be recognized in the purchase of XYZ Company in January 2017. The following information was taken from the records of ABC (see picture below):

Problem 1: Goodwill is measured by capitalizing excess earnings at 40% with normal return on average net assets at 10%. The net assets are fairly valued at January 2017. What is the purchase price of XYZ Company?

                                               Net Income during the year                  Net Assets, end of Year
2012                                   360,000                                          1,600,000
2013                                 388,000                                                1,800,000
2014                                       288,000                                      1,900,000
2015                                        380,000                                        2,000,000
2016                                       394,000                                         2,100,000
                                          = 1,810,000                                      = 9,400,000

A. 2,535,000
B. 2,100,000
C. 2,315,000
D. 2,305,000