Blossom Company is considering the acquisition of Splish, Inc. To assess the amount it might be willing to pay, Blossom makes thefollowing computations and assumptions.A. Splish, Inc. has identifiable assets with a total fair value of $6,014,000 and liabilities of $3,728,000. The assets include officeequipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with afair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those usedby Splish, Inc.B.Splish, Inc's pretax incomes for the years 2020 through 2022 were $470,600, $572,300, and $371,100, respectively.Blossom believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future.However, it may need to consider adjustments for the following items included in pretax earnings:Depreciation on Buildings (each year)384,800Depreciation on Equipment (each year)31,100Extraordinary Loss (year 2022)131,600Salary Expense (each year)174,300C.The normal rate of return on net assets for the industry is 15%. (b)Assume that Blossom feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalizedfor five years only. Based on these assumptions, calculate a reasonable offering price for Splish, Inc. Indicate how much of theprice consists of goodwill. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to O decimalplaces e.g. 58,971.)$Goodwill$Offering price

Acquisition of companies refers to the process by which one company purchases another, either by…

Assume that Blossom feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for five years only. Based on these assumptions, calculate a reasonable offering price for Splish, Inc. Indicate how much of the price consists of goodwill. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to O decimal places e.g. 58,971.) $ Goodwill $ Offering price

Assume that Blossom feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for five years only. Based on these assumptions, calculate a reasonable offering price for Splish, Inc. Indicate how much of the price consists of goodwill. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to O decimal places e.g. 58,971.) $ Goodwill $ Offering price

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter5: Business Deductions

Section: Chapter Questions

Problem 49P

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