Question

1) world corporation is buying all the assets and assuming all the liabilities The following information is available for Maxton at the day of the purchase:

cash 300,000 Accounts payable 50,000

Accounts Rec 100,000 Bond payable 100,000

Inventory 100,000 Common stock 200,000

Land 300,000 Retained Earnings 250,000

The inventory is worth $50,000 and the land is worth $500,000. Additionally, the Bond Payable debt is payable interest only at 10% per year for the next 5 years and then the principal is due. Current interest rates for similar debt is 8%. World Corp will pay $1,000,000 for Maxton. How much of the purchase price will World Corp debit to good will?

2) Shyam wants to calculate how much money he will get after 2 years at a rate of interest of 10% p.a. computed half-yearly on a sum of money of $ 5000?

Please provide the correct answer for both.

Answer 1

1. In order to calculate the amount of goodwill, we need to deduct the net assets value from the purchase consideration.

Net Assets = 300,000+ 100,000 + 50,000 + 500,000 - 50,000 - 100,000 - 200,000

- 250,000 = 800,000

good will = 200,000

2. Amount = $ 5,000 × (1.05)^4

= $ 6,077.53