Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 6, Problem 6.18E
Exercise 6.18
LO 9
Required:
- How much goodwill will result from this transaction?
- Calculate the ROI for Target Co. based on its present operating income and the fair value of its net assets.
- Calculate the ROI that Takeover Co. will earn if the operating income of the acquired net assets continues to be $540,000.
- What reasons can you think of to explain why Takeover Co. is willing to pay $900,000 more than fair value for the net assets acquired from Target Co.?
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PROBLEM 9.6A Accounting for Goodwill L LO9-6
Kivi Service Stations is considering expanding its operations to include the greater Dubuque area. Rather than build new service stations in
the Dubuque area, management plans to acquire existing service stations and convert them into Kivi outlets.
Kivi is evaluating two similar acquisition opportunities. Information relating to each of these service stations is presented as follows.
Joe's
Garage
Gas N' Go
Estimated normal rate of return on net assets
20%
20%
Fair value of net identifiable assets
$950,000
$980,000
Actual average net income for past five years
220,000
275,000
Instructions
a. Compute an estimated fair value for any goodwill associated with Kivi purchasing Joe's Garage. Base your computation upon an
assumption that successful service stations typically sell at about 9.25 times their annual earnings.
b. Compute an estimated fair value for any goodwill associated with Kivi purchasing Gas N' Go. Base your computation upon an…
n
Ex. 11-9
Exercise 11-9 (Static) Return on Investment (ROI) and Residual Income Relations [LO11-1, LO11-2]
A family friend has asked your help in analyzing the operations of three anonymous companies operating in the same service sector
industry. Supply the missing data in the table below: (Loss amounts should be indicated by a minus sign. Round your percentage
answers to nearest whole percent.)
Sales
Net operating income
Average operating assets
Return on investment (ROI)
Minimum required rate of return:
Percentage
Dollar amount
Residual income
$ 9,000,000
$ 3,000,000
18 %
16 %
$
$
$
Company
B
7,000,000
280,000
14 %
320,000
%
Saved
C
$ 4,500,000
$ 1,800,000
$
%
15 %
90,000
12 & 14 Recap 6
Saved
Help
Sav
Required information
[The following information applies to the questions displayed below.]
In each of the cases below, assume Division X has a product that can be sold either to outside customers or to Division Y
of the same company for use in its production process. The managers of the divisions are evaluated based on their
divisional profits.
Case
A
Division X:
Capacity in units
Number of units being sold to outside customers
Selling price per unit to outside customers
Variable costs per unit
Fixed costs per unit (based on capacity)
Division Y :
103,000
103,000
59 $
29 $
10 $
95,000
77,000
29
2$
15
5
Number of units needed for production
Purchase price per unit now being paid
to an outside supplier
18,000
18,000
53 $
30
Required:
1. Refer to the data in case A above. Assume in this case that $4 per unit in variable selling costs can be avoided on intracompany
sales.
a. What is the lowest acceptable transfer price from the perspective of the selling…
Chapter 6 Solutions
Accounting: What the Numbers Mean
Ch. 6 - Prob. 6.1MECh. 6 - Prob. 6.2MECh. 6 - Mini-Exercise 6.3 LO 3 Depreciation calculation...Ch. 6 - Prob. 6.4MECh. 6 - Mini-Exercise 6.5 LO 9 Goodwill Backstreets Co....Ch. 6 - Prob. 6.6MECh. 6 - Exercise 6.7 LO 1 Basket purchase allocation...Ch. 6 - Prob. 6.8ECh. 6 - Prob. 6.9ECh. 6 - Prob. 6.10E
Ch. 6 - Exercise 6.11 LO 3 Effect of depreciation on ROI...Ch. 6 - Exercise 6.12 LO 3 Financial statement effects of...Ch. 6 - Exercise 6.13 LO 3 Depreciation calculation...Ch. 6 - Exercise 6.14 LO 3 Depreciation calculation...Ch. 6 - Prob. 6.15ECh. 6 - Prob. 6.16ECh. 6 - Prob. 6.17ECh. 6 - Exercise 6.18 LO 9 Goodwill-effect on ROI and...Ch. 6 - Exercise 6.19 LO 6, 8, 9 Transaction...Ch. 6 - Exercise 6.20 LO 3, 4, 6, 8 Transaction...Ch. 6 - Prob. 6.21PCh. 6 - Prob. 6.22PCh. 6 - Prob. 6.23PCh. 6 - Problem 6.24 LO 3 Partial-year depreciation...Ch. 6 - Problem 6.25
LO 3
Identify depreciation methods...Ch. 6 - Prob. 6.26PCh. 6 - Prob. 6.27PCh. 6 - Prob. 6.28PCh. 6 - Prob. 6.29PCh. 6 - Prob. 6.30PCh. 6 - Prob. 6.31PCh. 6 - Prob. 6.32PCh. 6 - Prob. 6.33CCh. 6 - Prob. 6.34CCh. 6 - Case 6.35 LO 3, 6 Capstone analytical review of...
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