Reference no: EM132836685
Birch Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2019, is as follows:
Cash $59,000
Current liabilities $56,000 Accounts receivable 80,000
Bonds payable 239,000 Inventory 120,000
Common stock 325,000 Property, plant, and equipment (net) 580,000
Retained earnings 219,000
$839,000
At December 31, 2019, Birch discovered the following about EKC:
- No allowance for uncollectible accounts has been established. An allowance of $5,100 is considered appropriate.
- The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Birch. The FIFO inventory valuation of the December 31, 2019, ending inventory would be $185,000.
- The fair value of the property, plant, and equipment (net) is $710,000.
- The company has an unrecorded patent that is worth $100,000.
- The book values of the current liabilities and bonds payable are the same as their market values.
Required:
Problem 1. Compute the value of the goodwill if Birch pays $1,238,900 for EKC.
Problem 2. Next Level Why would the book value of a company's identifiable net assets differ from its market value?