Use the Following Information for Questions $\quad$ $\quad$ $\quad$

question 98

Multiple Choice

Use the following information for questions.
Jeremiah Inc. is being targeted for acquisition by Argo Corporation. As an analyst for Argo, you are asked to determine the goodwill that, pending various assumptions, may be inherent in this potential transaction.
The available information relating to Jeremiah includes the following:
Current net aszete: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\$5.1$ millien
Expected return on net assets for industry: $\quad$$\quad$$\quad$$\quad$$10 \%$ Reported net income for the previous six consecutive years:
$\begin{array}{llll}\text { YearAmount } &\text { Year }&\text { Amount } & \\2015 & \$ 710,000 & 2018 & \$ 745,000 \\2016 & \$ 680,000 & 2019 & \$ 815,000 \\2017 & \$ 980,000 & 2020 & \$ 835,000\end{array}$ Net income for 2020 included a $ 200,000 gain from the sale of a discontinued operation.
-Assuming that excess earnings are expected to continue for 8 years, and ignoring the time value of money, estimated goodwill is

• A) $ 2,273,000.
• B) $ 2,006,667.
• C) $ 1,854,333.
• D) $ 1,531,733.

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Definitions:

Straight-Line Basis

A method of calculating depreciation or amortization that spreads the asset's cost evenly across its useful life.

Accumulated Depreciation

The total amount of an asset's cost that has been expensed over time due to wear and tear, obsolescence, or age.

Residual Value

The projected sum an asset will fetch at the time of sale, once it has surpassed its lifespan.

Straight-Line Method

A method of calculating depreciation or amortization by evenly spreading the cost of an asset over its useful life.