Asked by Farid Habibi on May 27, 2024
Verified
At the beginning of 2010, Billy Co.purchased Willie Corp.The agreed fair value of Willie's net assets was $900, 000.The expected annual income for Willie was $60, 000.The normal return for the industry was 6%.Excess earnings were capitalized at 10%.How much of a premium (in excess of $900, 000) did Billy pay for Willie?
A) $ 600
B) $ 6, 000
C) $60, 000
D) $40, 000
Normal Return
The expected return on an investment under normal conditions, considering historical averages and market conditions.
Excess Earnings
Profits that exceed the normal expected return on investment or capital for a business operation or asset.
Fair Value
The estimated price at which an asset or liability could be bought or sold in an orderly transaction between market participants.
- Comprehend the necessary conditions and methods for accounting for goodwill, evaluating its impairment, and the disclosure thereof.
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Learning Objectives
- Comprehend the necessary conditions and methods for accounting for goodwill, evaluating its impairment, and the disclosure thereof.
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