Answer:
A. $1,085,000
B. $316,000
Explanation:
A. Computation of an estimated fair value for any goodwill associated with Kivi purchasing Joe’s Garage
Actual average net income per year $220,000
Sales multiplier 9.25 times
Estimated fair market value of Joe's Garage$2,035,000
($220,000*9.45 Times)
Fair market value of identifiable assets($950,000)
Estimated goodwill of Joe's Garage$1,085,000
($2,035,000-$950,000)
b. Computation for an estimated fair value for any goodwill associated with Kivi purchasing Gas N’ Go.
Actual average net income per year$275,000
Earnings for Gas N' Go($196,000)
(20%×$980,000)
Estimated excess earnings of Gas N' Go$79,000
($275,000-$196,000)
Management expect excess earning of four years ×4
Estimated goodwill of Gas N' Go $316,000
($79,000×4 years)
