In Which of the Following Situations Would Martinez Industries Include

question 61

Multiple Choice

In which of the following situations would Martinez Industries include goodwill in its balance sheet?

• A) The fair market value of Martinez's net identifiable assets amounts to $2,000,000. Normal earnings for this industry is 15 percent of net identifi?able assets. Martinez's net income for the past five years has averaged $390,000.
• B) Martinez spent $800,000 during the current year for research and development for a new product which promises to generate substantial revenue for at least 10 years.
• C) Martinez acquired Baxter Electronics at a price in excess of the fair market value of Baxter's net identifiable assets.
• D) A buyer wishing to purchase Martinez's entire operation has offered a price in excess of the fair market value of Martinez's net identifiable assets.

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Definitions:

Voting Rights

The entitlement of shareholders to vote on company matters, typically exercised at annual meetings or special resolutions, often proportional to the number of shares held.

Stock Splits

A corporate action where a company divides its existing stock into multiple shares to boost the liquidity of the shares.

Par Value Method

A method in accounting for the transaction of shares, where shares are recorded in accounts at their face or nominal value, often used in transactions related to bonds or share capital.

Treasury Stock

Shares of a company's own stock that it has reacquired from shareholders and holds, reducing the amount of outstanding stock on the open market.