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

question 80

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.
-Estimated goodwill by capitalizing average excess earnings at 14% is

• A) $ 2,029,762.
• B) $ 1,791,667.
• C) $ 1,654,331.
• D) $ 760,833.

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Definitions:

Maturity

The date on which a financial instrument (such as a bond, loan, or another form of debt) reaches its due date and the principal must be repaid.

Interest-bearing Note

A debt instrument that obligates the borrower to pay interest in addition to repaying the principal amount borrowed.

Journal Entry

The process of recording financial transactions in the ledger of a business, indicating debits and credits.

FICA Tax

A federal tax in the United States that funds Social Security and Medicare, required to be paid by both employees and employers.