Wildhorse Company is considering the acquisition of Ayayai, Inc. To assess the amount it might be willing to pay, Wildhorse makes the following computations and assumptions. A. B. C. Ayayai, Inc. has identifiable assets with a total fair value of $6,019,000 and liabilities of $3,721,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Ayayai, Inc. Ayayai, Inc's pretax incomes for the years 2020 through 2022 were $471,300, $573,100, and $374,600, respectively. Wildhorse believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) Depreciation on Equipment (each year) Extraordinary Loss (year 2022) Salary Expense (each year) 382,500 34,100 133,500 171,500 The normal rate of return on net assets for the industry is 15%.

Wildhorse Company is considering the acquisition of Ayayai, Inc. To assess the amount it might be willing to pay, Wildhorse makes the following computations and assumptions. A. B. C. Ayayai, Inc. has identifiable assets with a total fair value of $6,019,000 and liabilities of $3,721,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 25% higher than book value, and land with a fair value 50% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Ayayai, Inc. Ayayai, Inc's pretax incomes for the years 2020 through 2022 were $471,300, $573,100, and $374,600, respectively. Wildhorse believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments for the following items included in pretax earnings: Depreciation on Buildings (each year) Depreciation on Equipment (each year) Extraordinary Loss (year 2022) Salary Expense (each year) 382,500 34,100 133,500 171,500 The normal rate of return on net assets for the industry is 15%.

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter5: Business Deductions

Section: Chapter Questions

Problem 49P

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