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# Estimating goodwill and Depreciation Methods

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E 9-4 On January 2, 2005, Jansing Corporation acquired a new machine with an estimated useful life of 5 years. The cost of the equipment was \$40,000 with a residual value of \$5,000.

a. Prepare a complete depreciation table under the three depreciation methods listed below. Use a format similar to the illustrations in Exhibits 9-4, 9-5, and 9-6. In each case, assume that a full year of depreciation was taken in 2005.
1. Straight-line.
2. 200 percent declining-balance.
3. 150 percent declining-balance.

b. Comment on significant differences or similarities that you observe among the patterns of depreciation expense recognized under each of these methods.

E 9.8 During the past several years the annual net income of Avery Company has averaged \$540,000. At the present time the company is being offered for sale. Its accounting records show the book value of net assets (total assets minus all liabilities) to be \$2,800,000. The fair market value of Avery's net identifiable assets, however, is \$3,000,000.

a. An investor negotiating to buy the company offers to pay an amount equal to the fair market value for the net identifiable assets and to assume all liabilities. In addition, the investor is willing to pay for goodwill an amount equal to the above-average earnings for five years.

b. On the basis of this agreement, what price should the investor offer? Anormal return on the fair value of net assets in this industry is 15 percent.

#### Solution Summary

The solution explains how to determine the amount of goodwill and calculate depreciation using different methods

\$2.19