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CHAPTER 14

MULTIPLE CHOICES - COMPUTATIONAL

14-1: Man Inc. purchased all of the net assets of Woman Company on January 2, 2013 by
issuing 8,000 shares of its P10 par common stock. At the time, the stock was selling for P30 per
share. Direct costs associated with consummating the combination totaled P4,000. Under IFRS3,
what total amount should the net assets acquired be recorded by Man Inc. Assuming that
contingent consideration of P5,000 is determined?
a. 249,000
b. 271,000
c. 244,000
d. 245,000
Price paid (8,000 shares x P30) P240,000
Contingent consideration 5,000
Acquisition cost P245,000

14-2: The net assets of Acquired Company have a book value of P150,000 and a fair value of
P180,000. Acquiring Company paid P250,000 cash for all the net assets of Acquired Company.
Acquiring Company also paid P50,000 to an investment house as finder’s fee. At what amount
should goodwill be recorded on Acquiring Company’s books?
a. 120,000
b. 70,000
c. 120,000
d. 70,000
Purchase price P250,000
Less: Fair value of net assets acquired 180,000
Goodwill P70,000

14-3: On June 30,2013 White corporation issued 100,000 shares of its P20 par value common
stock for the net assets of Black Company in a business combination accounted for by the
acquisition method. The market value of White’s common stock on June 30 was P36 per share.
White paid a fee of 100,000 to the broker who arranged this acquisition. Costs of SEC
registration and issuance of the equity securities amounted to P50,000.
Contingent consideration determined to be paid to Black Company after acquisition amounts to
P120,000
What amount should White capitalize as the cost of acquiring Black’s net assets.
a. 3,620,000
b. 3,650,000
c. 3,720,000
d. 3,750,000
Purchase price (100,000 shares x P36) P3,600,000
Contingent consideration 120,000
Total costs P3,720,000

14-4: On January 1, 2013 CJ corporation acquired the net assets of Rex, Inc., by issuing 600,000
shares of its P10 par value common stock. Subsequently, Rex was liquidated and its assets and
liabilities merged into CJ Corporation. CJ’s stock was selling for P50 per share on January
1,2013. The amount of goodwill recorded by CJ in connection with the combination was

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6,120,000. CJ incurred P300,000 of legal and brokers fees associated with the combination and
P30,000 of stock issuance costs.
What is the fair value of Rex’s net assets and the amount of the increase in CJ’s stockholders’
equity as a result of the combination, respectively?
a. 23,880,000 and 30,000,000
b. 24,180,000 and 30,000,000
c. 24,280,000 and 29,970,000
d. 23,880,000 and 29,970,00

Price paid (600,000 shares x P50) P30,000,000

Less: goodwill recorded 6,120,000
Fair value of net assets acquired P23,880,000

Capital stock issued (600,000 shares x P10) P 6,000,000

APIC (600,000 shares xP40) – P30,000 23,970,000
Increase in CJ’s equity P29,970,000

14-5: Pool company issued 120,000 shares of P10 par common stock with a fair value of
P2,550,000 for the net assets of Spot Company. In addition, Pool incurred the following
acquisition-related costs:
legal fees to arrange the business combination P25,000
costs of SEC registration, including accounting and legal fees 12,000
cost of issuing stock certificates 3,000
documentary stamp tax 20,000

Immediately before the business combination in which Spot Company was dissolved, Spot’s
assets and equities were as follows (in thousands):
BOOK VALUE FAIR VALUE
Current assets 2,000 1,100
Plant assets 1,500 2,200
Liabilities 300 300
Common stock 2,000
Retained earnings 200
What is the amount of goodwill (income from acquisition) and APIC to be recognized by Pool
Company?
a. (450,000) and 1,335,000
b. (410,000) and 1,200,000
c. (425,000) and 1,185,000
d. (450,000) and 1,315,000

Price paid P2,550,000

Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 450,000)

APIC: [(P2,550,000 – P1,200,000) - P35,000*] P1,315,000

*Costs of SEC registration P12,000

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Cost of issuing stock certificates 3,000

Documentary stamp tax 20,000
Total P35,000

14-6: Plata Corporation paid P100,000 cash for the net assets of Oro Company, which consisted
of the following?
BOOK VALUE FAIR VALUE
Current assets 20,000 28,000
Property and equipment 80,000 110,000
Liabilities assumed 20,000 18,000
The property and equipment acquired in this business combination should be recorded at:
a. 110,000
b. 100,000
c. 91,666
d. 90,000

14-7: Abel and Cain Corporations were combined on April 1, 2013 in a business combination,
and Cain Corporation was dissolved and liquidated. For the year 2013, the companies had the
following net income records:
Abel Corporations (January 11-April 1) 80,000
Abel Corporation (April 1- December 31) 1,320,000
Cain Corporation (January 1- April 1) 200,000
Cain Corporation (April 1- December 31) 400,000
Abel Corporation, the surviving corporation will report income for 2013 of:
a. 1,320,000
b. 1,400,000
c. 1,720,000
d. 1,800,000

Abel net income, January to December (P80,000 + P1,320,000) P1,400,000

Cain net income, April to December 400,000
Total net income P1,800,000

14-8: On April 27,2013, Peter Inc paid P800,000 for the assets of Ana Company. The recorded
assets and liabilities of Ana Company on April 27, 2013 follow:
Cash 160,000
Inventory 480,000
Property and equipment (net of accumulated
Depreciation of P640,000) 960,000
Liabilities 360,000

On April 27, 2013 it was determined that the inventory of Ana had a fair value of 380,000 and the
property and equipment (net) had a fair value of P1,120,000. What is the amount of goodwill
(income from acquisition) resulting from the business combination?
a. (500,000
b. 100,000
c. 300,000
d. (360,000)

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Price paid P 800,000

Less: Fair value of net assets acquired
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities ( 360,000) 1,300,000
Income from acquisition P (500,000)

14.9 Avon Corporation issued common stock with a par value of P450,000 and a market value
of P700,000 to acquire the net assets of Bell Corporation in a business combination. Avon
reported assets of P2,000,000 and liabilitites of 542,000 immediately before the business
combination. Bell corporation’s assets and liabilities had a book values of P460,000 and
P187,000 respectively. The fair values of Bell’s assets and liabilities were P600,000 and
P188,000 respectively.
What amount should be reported as total assets of the combined entity immediately
following the business combination?
a. 2,888,000
b. 2,600,000
c. 2,158,000
d. 1,870,000

Price paid P 700,000

Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000
Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
Total assets P2,888,000

14-10: When White Company acquired Black Company’s net assets by issuing its own capital
stock, it had the following acquisition-related costs:
Broker’s fee 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for the combination 32,000
Audit fee for SEC registration of stock issue 46,000
SEC registration fee for stock issue 5,000
Other acquisition costs 6,000

The acquisition-related costs should be debited to the following accounts:

Expenses Additional paid in capital
a. 143,000 78,000
b. 21,000 51,000
c. 143,000 51,000
d. 11,000 5,000

Debit to expenses:
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000

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Legal fees for business combination 32,000

Other acquisition costs 6,000
Total P 143,000

Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000

14-11: On January 1, 2013 Polo Company pays P270,000 cash and also issue 18,000 shares of
P10 par common stock with a market value of 330,000 for the net asset of Sure Company. In
addition, Polo pays 30,000 for registering and issuing the 18,000 shares and 70,000 for
professional fees to effect the combination. Summary balances immediately before the
combination is as follows (in thousands):
Polo Book Value Sure Book Value Sure Fair Value
Cash 350 40 40
Inventories 120 80 100
Other current assets 30 20 20
Plant assets-net 260 180 180
Total assets 760 320 340

Current liabilities 160 30 30

Other liabilities 80 50 40
Common stock, P10 par 420 200
Retained earnings 100 40
Total liabilities and equity760 320

What is the total asset of Polo Company after the acquisition?

a. 1,090,000
b. 1,080,000
c. 1,260,000
d. 1,060,000

Consideration given:
Cash P270,000
Stocks issued at fair value 330,000
Total P600,000
Less: fair value of net assets acquired:
Cash P40,000
Inventories 100,000
Other current assets 20,000
Plant assets (net) 180,000

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Current liabilities (30,000)

Other liabilities (40,000) 270,000
Goodwill P330,000

Total assets after combination:

Total assets before combination P 760,000
Cash paid (P270,000 + P70,000) (340,000)
Registration and issuance costs of shares issued ( 30,000)
Polo’s assets after combination P 390,000
Assets acquired at fair values 340,000
Goodwill 330,000
Total assets after combination P1,060,000

14-12: On March 1, 2013, SS Corporation acquired for P1,400,000 all the net assets of MM
company. On the date of the combination, the carrying value of MM’s identifiable net assets was
P1,150,000. The current fair value of MM’s inventories was 200,000 less than their carrying
values, and the current fair value of MM’s plant assets was P400,000 larger than their carrying
amount. The current fair values of all identifiable net assets of MM were equal to their carrying
value. The journal entry prepared by SS corporation to record the business combination includes:
a. A debit of P200,000 to inventories
b. A credit of P400,000 to plant assets (net)
c. A debit of P350,000 to Goodwill
d. A debit of P50,000 to Goodwill

Price paid P1,400,000

Less: Fair value net assets acquired 1,350,000
Goodwill P 50,000

14-13: Astro Corporation purchased the net assets of Bistro Corporation for P160,000. On the
date of the purchase, Bistro Corporation had no long-term investments in marketable securities.
The liabilities of the corporation amounted to P20,000. The market values of its assets were:
Current assets 80,000
Noncurrent assets 120,000
Total 200,000

The noncurrent assets and goodwill (income from acquisition) acquired should be recorded at:
Noncurrent assets Goodwill
a. 120,000 (20,000)
b. 100,000 0
c. 140,000 100,000
d. 150,000 0

Price paid P160,000

Less: Fair value of net identifiable assets acquired:
Current assets P 80,000
Non-current assets 120,000
Liabilities ( 20,000) 180,000
Income from acquisition P(20,000)

Non- current assets P120,000

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14-14: On April 1, 2013, the Rolex Company paid P600,000 for the net assets of Seiko Company
in a transaction properly accounted for as acquisition. On this date, the assets and liabilities of
Seiko Company were as follow:
Cash 60,000
Merchandise inventory 180,000
Plant assets (net) 360,000
Liabilities 135,000
Furthermore, it was determined that the merchandise inventory of Seiko Company had a fair
market value of P142,500 and the planet assets of P420,000. What should be the amount recorded
as goodwill by Rolex Company as a result of the business combination?
a. 0
b. 37,500
c. 112,500
d. 112,500

Price paid P600,000

Less: Fair value of identifiable assets acquired:
Cash P 60,000
Merchandise inventory 142,500
Plant assets (net) 420,000
Liabilities (135,000) 487,500
Goodwill P112,500

14-15: MM Company issued its common stock for the net assets of PP Company in a business
combination treated as acquisition. MM’s common stock issued was worth P1,000,000. At the
date of combination, MM;s net assets had a book value of P1.2 million and a fair value of P1.6
million; PP’s net assets had a book value of P650,000 and a fair value of P800,000. Immediately
following the combination, the net assets of the combined company should have been reported at
what amount?
a. 3,000,000
b. 2,200,000
c. 2,000,000
d. 1,850,000

Price paid P1,000,000

Less: Fair value of identifiable assets acquired 800,000
Goodwill P 200,000
MM’s net assets at book value 1,200,000
PP’s net assets at fair value 800,000
Total assets after combination P2,200,000

14-16: The net assets of BB Company have a book value of P300,000 and a fair market value of
P420,000. Among the undervalued assets are the plant and equipment which have a book value of
P200,000 and a fair value of P225,000. AA company issues stock with a par value of P250,000
and a market value of P600,000 for the net assets of BB Company. Shortly after the stock issue
BB merges with AA company. At what amount should BB’s plant and equipment be recorded on
AA Company’s books/
a. 250,000
b. 200,000
c. 225,000
d. 300,000

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c, Under the acquisition method assets are recorded at their fair values (P225.000)

14-17: Presented below is the condensed balance sheet for the Tiger company as of December
31,2013
BOOK VALUE MARKET VALUE
Current assets 200,000 225,000
Plant assets 300,000 400,000
Total 500,000 625,000

Liabilities 150,000 125,000

Capital stock, par P10 50,000
Additional paid in capital 100,000
Retained earnings 200,000
Total 500,000

On January 1,2013, Acquisition Inc. issues 10,000 shares of its P10 par value stock with a market
value of P50 per share for the net assets of Tiger company.
What is the total stockholder’s equity of Acquisition, Inc. after the acquisition?
a. 850,000
b. 350,000
c. 450,000
d. 500,000

Capital stock issued at par (10,000 shares x P10) P100,000

APIC (10,000 shares x P40) 400,000
Total P500,000

14-18: d, net assets are recorded at their fair values; No APIC is recorded and stock acquisition
costs of P5,000 is recognized (P405,000 less P400,000).

14-19: The VV Company will issue shares of P10 par value common stock for all the assets and
liabilities of the NN company. VV Company’s common stock has a current market value fo P40
per share. The NN Company’s Statement of Financial Position prior to the acquisition is shown
below
NN Company
Statement of Financial Position
January 1,2013
Assets Liabilities and equity
Current assets 320,000 liabilities 400,000
Property,plant Equity
And equipment 880,000 Common stock P4 par 80,000
Additional paid in
Capital 320,000
Retained earnings 400,000 800,000
Total assets 1,200,000 total liab and equity
1,200,000
The fair market value of the current assets is P400,000 while that of the property, plant and
equipment is P1,600,000. All the liabilities are correctly stated VV Company issued sufficient
shares of stock so that their fair market value of the stock issued is equal the fair market value NN
company’s net assets.

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To have an income from acquisition of P100,000, the number of shares to be issued by VV

company should be:
a. 37,500
b. 37,000
c. 42,500
d. 42,000

Income from acquisition P 100,000

Fair value of net assets acquired P2,000,000 – P400,000) 1,600,000
Price paid 1,500,000

Shares to be issued (P1,500,000 ÷ P40) 37,500 shares

14-20: Using the data in Q14-19 to have a goodwill of 200,000, the number of shares to be
issued by VV Company is:
a. 40,000
b. 44,500
c. 36,000
d. 45,000

Goodwill P 200,000
Fair value of net assets acquired 1,600,000
Price paid P1,800,000

Shares to be issued (P1,800,000 ÷ P40) 45,000 shares

14-21: Condensed Statement of Financial Position for Pablo and Siso Corporations at
December 31, 2012 are as follows (in thousands)
PABLOSISO
Current assets 130 60
Noncurrent assets 570 440
Total assets 700 500

Current liabilities 50 60
Capital stock, P10 par 500 200
Additional paid-in capital 50 140
Retained earnings 100 100
Total equities 700 500

On January 2, 2013, Pablo issues 30,000 shares of its stock with a market value of P20 per
share for the assets and liabilities of Siso Corporation. Siso is dissolved. The book values
reflect fair values, except a noncurrent asset of Pablo, which have a fair value of P400,000
and the current assets of Siso, which have a net realizable value of P100,000.

Pablo pays the following expenses in connection with the business combination:
Cost of registering and issuing securities issued 15,000
Other acquisition costs of combination 25,000
Contract for contingent consideration to be paid to Siso, P75,000. This is determined on the
date of acquisition.

What is the total asset of Pablo Corporation after acquisition?

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a. 1,410,000
b. 1,265,000
c. 1,395,000
d. 1,385,000

Total assets of Pablo before acquisition at book value P 700,000

Total assets acquired from Siso at fair value (100,000 +440,000) 540,000
Total assets 1,240,000
Less: cash paid (15,000 + 25,000) 40,000
Total assets after cash payment 1,200,000
Goodwill to be recognized (Sched 1) 195,000
Total assets after combination 1,395,000

Sched 1: Consideration given:

Purchase price (30,000 shares x P20) 600,000
Contingent consideration 75,000 675,000
Fair value of net assets acquired (540,000 – 60,000) 480,000
Goodwill 195,000

14-22: Using the data in 14-21, what is the total stockholder’s equity of Pablo Corporation
after acquisition?
a. 1,210,000
b. 1,250,000
c. 1,150,000
d. 1,285,000

Capital stock issued at par (P500,000 + P300,000) P 800,000

APIC (50,000 + 300,000) – 15,000 335,000
Retained earnings (P100,000 – 25,000) 75,000
Stockholders equity after acquisition 1,210,000

14-23 to 14-25. Statement of financial position reflecting uniform accounting procedures,

as well as fair values that are to be used as basis of the combination are prepared on
September 1,2013 as follows
A Company B Company C Company
Assets 5,250,000 6,800,000 900,000

Liabilities 3,950,000 2,650,000 530,000

Capital, stock all P10 par 1,700,000 1,200,000 275,000
Additional paid-in capital 500,000 140,000
Retained earnings (deficit) (400,000) 6,800,000 900,000

A Company shares have a market value of P22 per share. Market values is not available for
shares of B Company and C Company.

On September 1,2013 A Company acquires all of the assets and assumes the liabilities of B
Company and C Company by issuing 200,000 shares of its stock to B Company and 29,000
shares of its stock to C Company. A Company pays P10,000 for registering and issuing
securities and P20,000 for other acquisition costs of combination

14-23. What is the goodwill to be recorded by A Company on September 1, 2013?

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a. 518,000
b. 250,000
c. 268,000
d. 500,000
B Company C Company
Consideration given P4,400,000 P638,000
Less: fair value of net assets acquired 4,150,000 370,000
Goodwill P 250,000 P268,000

Total goodwill recorded (250,000 + 268,000) 518,000

14-24: What is the total assets of A Company after combination?

a. 13,438,000
b. 12,920,000
c. 12,730,000
d. 13,248,000

A Company 5,250,000
B Company 6,800,000
C Company 900,000
Cash paid for acquisition costs (P20,000 + P10,000) (30,000)
Goodwill (see 14-23) 518,000
Total assets after combination 13,438,000

14-25: What is the total stockholder’s equity in the combined statement of financial position
after combination on September 1,2013?
a. 6,308,000
b. 7,148,000
c. 6,728,000
d. 1,300,000

Stockholders equity before acquisition – A Company P1,300,000

Capital stock issued at par (229,000 shares x P10) 2,290,000
Additional paid-in-capital [(229,000 x 12) – 10,000] 2,738,000
Other acquisition cost (reduction from retained earnings) (20,000)
Stockholders equity after acquisition 6,308,000

14-26: Pearl Company is acquiring the net asset of Sam Company for an agree upon price of
P900,000 on July 1,2013. The value was tentatively assigned as follows:
Current assets 100,000
Land 50,000
Equipment (5-year life) 200,000
Building (20-year life) 500,000
Current liabilities (150,000)
Goodwill 200,000

Values were subject to change during the measurement period. Depreciation is taken to the
nearest month. The measurement period expired on July 1,2014, at which time the fair values of
the equipment and buildings as of the acquisition date were revised to P180,000 and P550,000
respectively.

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1. How much total depreciation expense would be recorded for 2014.

a. 63,500
b. 65,000
c. 61,500
d. 65,500

Equipment: P180,000/5 yrs. = P36,000

Building: P550,000/20 yrs. = 27,500
Total depreciation P63,500

2. How much goodwill is presented in 2014 statement of financial position?

a. 230,000
b. 170,000
c. 180,000
d. 200,000

Price paid P900,000

Less fair value of net assets acquired:
Current assets P100,000
Land 50,000
Equipment 180,000
Building 550,000
Current liabilities (150,000) 730,000
Goodwill P170,000

14-27: On August 1,2012 the Gerry Company acquired the net assets of Rodil Company for a
price of P32M. At the acquisition date the carrying value of Rodil’s net asset was P20M. At the
acquisition date a provisional fair value of net assets was 24M. An additional valuation received
on June 30,2013 increased the provisional value to 27M and on August 31,2013 this fair value
was finalized at 28M.
What amount should Gerry Company present the goodwill in its statement of financial position at
December 31,2013?
a. 5M
b. 4M
c. 8M
d.
Price paid P32 M
Final fair value of net assets 28 M
Goodwill P 4 M

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PROBLEMS

Problem 14-1

Big Corporation purchases the net assets of Small Corporation for P500,000 cash. Prior to the
combination, Small Corporation has the following Statement of Financial Position
Small Corporation
Statement of Financial Position
January 1,2013
ASSETS LIABILITIES AND EQUITY
Current Assets: Current liabilities 500,000
A/R 120,000 Stockholder’s equity
Inventories 100,000 220,000 Common stock
Property,plant and P10 par 200,000
Equipment 280,000 Retained earnings 250,000 450,000
Total assets 500,000 Total Liabilities and Equity 500,000

Fair market value agree with book values except for inventories and property plant and
equipment, which have fair market values of P140,000 and P300,000 respectively. To
consummate the transaction Big incurs P5,000 acquisition-related costs.

1.Record the acquisition on the Big Corporation’s books. Provide support for your entry as
needed

Books of Big Corporation

(a) To record acquisition of net assets of Small:
Accounts receivable 120,000
Inventories 140,000
Property, plant and equipment 300,000
Current liabilities 50,000
Income from acquisition 10,000
Cash 500,000

(b) To record acquisition-related costs:

Acquisition expense 5,000
Cash 5,000

Computation of Income from Acquisition:

Price paid P500,000
Less: Fair value of net identifiable assets acquired:
Accounts receivable P120,000
Inventories 140,000
Property, plant and equipment 300,000
Current liabilities ( 50,000) 510,000
Income from acquisition P( 10,000)

2.Record the sale on the books of Small Corporation and the subsequent total liquidation of
the corporation

Books of Small Corporation

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(a) To record the sale of net assets to Big:

Cash 500,000
Current liabilities 50,000
Accounts receivable 120,000
Inventories 100,000
Property, plant and equipment 280,000
Retained earnings 50,000

(b) To record liquidation of the corporation:

Common stock 200,000
Retained earnings 300,000
Cash 500,000

Problem 14-2
DOG Company acquired the net assets of CAT Corporation on January 3,2013 for P565,000 cash.
In addition, P5,000 of professional fees were incurred in consummating the combination. At the
time of acquisition CAT Corporation reported the following book value and current market data:
BOOK VALUE FAIR VALUE
Cash and receivables 50,000 50,000
Inventory 100,000 150,000
Buildings and equipment(net) 200,000 300,000
Patent 200,000
Total Assets 350,000 700,000

Accounts payable 30,000 30,000

Common stock 100,000
Additional paid-in capital 80,000
Retained earnings 140,000
Total liabilities and equities 350,000

Required: Give the journal entry or entries recorded by DOG Company to record the acquisition
of the net assets of CAT corporation.

(1) To record the acquisition of net assets:

Cash 50,000
Inventory 150,000
Building and equipment – net 300,000
Patent 200,000
Accounts payable 30,000
Cash 565,000
Income from acquisition 105,000

Computation of Income from Acquisition

Price paid P565,000
Less: Fair value of net identifiable assets acquired
Total assets P700,000
Accounts payable ( 30,000) 670,000
Income from acquisition P(105,000)

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(2) To record acquisition-related costs:

Acquisition expenses 5,000
Cash 5,000

Problem 14-3
On January 1,2013, Tagalog Corporation issued 6,000 shares of its P10 par value common stock
to acquire the assets and liabilities of Visaya Corporation. Tagalog Corporation shares were
selling at P90 on that date. Carrying value and fair value data for Visaya corporation at the time
of acquisition were as follows:
CARRYING VALUE FAIR VALUE
Cash and receivables 50,000 50,000
Inventory 120,000 200,000
Buildings and equipment 400,000 300,000
Less: accumulated depreciation (150,000)
Total Assets 420,000 550,000

Accounts payable 50,000 50,000

Common stock (P20 par value) 200,000
Retained earnings 170,000
Total liabilities and equities 420,000

Tagalog Corporation paid P25,000 for SEC registration and issuance of its new shares and paid
profession fees of P15,00.

Required: Record the journal entries for the acquisition in the books of Tagalog Corporation.
(1) To record acquisition of net assets:
Cash and receivables 50,000
Inventory 200,000
Building and equipment 300,000
Goodwill 40,000
Accounts payable 50,000
Common stock, P10 par value 60,000
Additional paid-in capital 480,000

Computation of Goodwill
Price paid (6,000 shares x P90) P540,000
Less: fair value of net identifiable assets acquired
Total assets P550,000
Accounts payable ( 50,000) 500,000
Goodwill P 40,000

(2) To record acquisition-related costs:

Additional paid-in capital 25,000
Acquisition expenses 15,000
Cash 40,000

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Problem 14-4
On January 1,2013, Pal Products Corporation issues 12,000 shares of its P10 par value stocks to
acquire the net assets of Tan Company. Underlying book value and fair value information for the
statement of financial position items of Tan Company at the time of acquisition are as follows;
BOOK VALUE FAIR VALUE
Cash 60,000 60,000
Accounts receivable 100,000 100,000
Inventory (lifo basis) 60,000 115,000
Land 50,000 70,000
Buildings and equipment 400,000 350,000
Less: accumulated depreciation (150,000)
Total assets 520,000 695,000

Accounts payable 10,000 10,000

Bonds payable 200,000
Common stock (P5 par value) 150,000
Additional paid-in capital 70,000
Retained earnings 90,000
Total liabilities and equities 520,000

Tan shares were selling at P18 and Pal Products shares were selling at P50 just before the merger
announcement. Additional cash payments made by Pal Corporation in completing the acquisition
were:
Broker’s fee paid to firm that located Tan 10,000
Audit fee for stock issued by Pal Products 12,000
Cost of SEC registration of Pal Products shares 6,000

Required: Prepare all journal entries to be recorded on Pal Products’ Books.

(1) To record acquisition of net assets:

Cash 60,000
Accounts receivable 100,000
Inventory 115,000
Land 70,000
Building and equipment 350,000
Bond discount 20,000
Goodwill 95,000
Accounts payable 10,000
Bonds payable 200,000
Common stock, P10 par value 120,000
Additional paid-in capital 480,000

Computation of Goodwill
Purchase price (12,000 shares x P50) P600,000
Less: Fair value of net identifiable assets acquired
Total assets P695,000
Total liabilities ( 190,000) 505,000
Goodwill P 95,000

(2) To record acquisition-related costs:

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Additional paid in capital 18,000

Acquisition expense 10,000
Cash 28,000

Problem 14-5
Papa Corporation and Mama Corporaiton have announced terms of an exchange agreement under
which Papa will issue 8,000 shares of its P10 par value common stock to acquire all the assets of
Mama Company. Papa shares currently are trading at P50, and Mama P5 par value shares are
trading at P18 each. Book value and fair value statement of financial position data on January 1,
2013 are as follows:
Papa Corporation Mama Corporation
Items Book value Fair value Book value Fair value
Cash and receivables 150,000 150,000 40,000 40,000
Land 100,000 170,000 50,000 85,000
Buildings and equipment (net) 300,000 400,000 160,000 230,000
Total assets 550,000 720,000 250,000 355,000

Common stock 200,000 100,000

Additional paid-in capital 20,000 10,000
Retained earnings 330,000 140,000
Total equities 550,000 250,000

Required: What will be the amount reported immediately following the business combination for
each of the following items in the company’s combined Statement of Financial Position.

1. Common stock:: P200,000 + (8,000 shares x P10) P280,000

2. Cash and receivables: P150,000 + P40,000 190,000
3. Land: P100,000 + P85,000 185,000
4. Building and equipment – net: P300,000 + P230,000 530,000
5. Goodwill: (8,000 shares x P50) - P355,000 45,000
6. APIC: P20,000 + (8,000 shares x P40) 340,000
7. Retained earnings 330,000

Problem 14-6

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The following Statement of Financial position were prepared for Red and Blue Corporations on
January 1,2013 just before they entered into a business combination:
Red Corporation Blue Corporation
Items Book value Fair Value Book value Fair value
Cash and receivables 300,000 300,000 50,000 50,000
Inventory 400,000 600,000 100,000 245,000
Buildings and equipment 800,000 870,000 300,000 250,000
Less: accumulated depreciation (200,000) (150,000)
Total assets 1,300,000 1,770,000 300,000 545,000

Accounts payable 100,000 100,000 40,000 40,000

Bonds payable 400,000 440,000 60,000 85,000
Common stock:
10 par value 300,000
P5 par value 100,000
Additional Paid-in capital 100,000 20,000
Retained earnings 400,000 80,000
Total liabilities and equities 1,300,000 300,000

Required: Assume that Reid acquires the net assets of Blue by issuing 15,000 shares of stock.
Prepare a Statement of Financial Position for the combined company immediately after the
acquisition if the market price of Red shares is ( 1) P40 and (2) P20 at the time the acquisition
occurs.

Combined Statement of Financial Position

After acquisition

Based on P40/share Based on

P20/share
Cash and receivables P 350,000 P 350,000
Inventory 645,000 645,000
Building and equipment 1,050,000 1,050,000
Accumulated depreciation (200,000) (200,000)
Goodwill 180,000 -
Total assets P2,025,000 P1,845,000

Accounts payable P 140,000 P 140,000

Bonds payable 485,000 485,000
Common stock P10 Par value 450,000 450,000
Additional paid-in capital 550,000 250,000
Retained earnings(including income from acquisition) 400,000 520,000
Total liabilities and stockholders’ equity P2,025,000 P1,845,000

Computation of Goodwill – Based on P40 per share:

Price paid (15,000 shares x P40) P600,000
Less: Fair value of net identifiable assets (P545,000 – P125,000) 420,000
Goodwill P180,000

Computation of Income from Acquisition – Based on P20 per share:

Price paid (15,000 shares x P20) P300,000

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Less: Fair value of net identifiable assets 420,000

Income from acquisition (added to retained earnings of Red) P(120,000)

Problem 14-7
Coke Company and Pepsi Company agreed to a combination on January 1, 2013. On the date of
the combination, the companies report the following data:
Coke Corporation Pepsi Corporation
Items Book value Fair Value Book value Fair value
Cash and receivables 90,000 90,000 20,000 20,000
Inventory 100,000 150,000 30,000 42,000
Land 100,000 140,000 10,000 15,000
Plant and equipment 400,000 200,000
Less: accumulated depreciation (150,000) 300,000 (80,000) 140,000
Total assets 540,000 680,000 180,000 217,000

Current liabilities 80,000 80,000 20,000 20,000

Capital stock 200,000 20,000
Additional paid in capital 20,000 5,000
Retained earnings 240,000 135,000
Total liabilities and equities 540,000 180,000

Coke has 10,000 shares of its P20 par value shares outstanding on January 1,2013 and Pepsi has
4,000 shares of P5 par value stock outstanding. The market values of the shares of P300 and P50
respectively.

Required:

(a)Coke issues 700 shares of stock in exchange for all the net assets of Pepsi. Prepare a
Statement of Financial Position for the combined entity immediately following the
acquisition.

Combined Statement of Financial Position

January 1, 2013

ASSETS
Cash and receivables P 110,000
Inventory 142,000
Land 115,000
Plant and equipment P540,000
Less: Accumulated depreciation 150,000 390,000
Goodwill 13,000
Total assets P 770,000

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities P 100,000
Capital stock, P20 par value 214,000
APIC 216,000
Retained earnings 240,000
Total liabilities and stockholders’ equity P 770,000

Problem 14-7, continued:

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Computation of Goodwill
Price paid (700 shares x P300) P210,000
Less: Fair value of net identifiable assets acquired
(P217,000 – P20,000) 197,000
Goodwill P 13,000

(b) Prepare the stockholders’ equity section of the combined company. Assuming coke
acquires all the net assets of Pepsi by issuing the following shares and stock issuance sots of
P350,000 was incurred:
1. 1,100 shares of common
2. 1,800 shares of common
3. 1,000 shares of common

Stockholders’ Equity section

(1) With 1,100 shares issued

Capital stock: P200,000 + (1,100 shares x P20) P222,000

APIC -0-
Retained earnings 240,000
Stock issuance costs (P350,000 – 328,000 ) (22,000)
Total P440,000

(2) With 1,800 shares issued

Capital stock: P200,000 + (1,800 shares x P20) P 236,000

APIC: P20,000 + (1,800 x P280) =524,000 – 350,000 174,000
Retained earnings 240,000
Total P 650,000

(3) With 3,000 shares issued

Capital stock: P200,000 + (1,000 shares x P20) P220,000

APIC: P20,000 + (1,000 x P280) = P300,000 - P300,000 -0-
Retained earnings 240,000
Stock issuance costs (P350,000 – P300,000) (50,000)
Total P410,000

Problem 14-8
On July 1, 2012 Dollar Transport acquired all of the assets and liabilities of the Avis Company by
issuing 25,000 common shares. At the date of acquisition, Dollar stock was selling for P96 per
share; the net book value of the Avis Company on that date was P2,200,000. All the excess of the
purchase price over Avis Company net book value was attributable to goodwill. The following
annual results of operations were reported by Dollar and Avis prior to the combination and by the
combined company subsequent to the combination:
2011 2012 2013
Revenue
Dollar 1,400,000 2,000,000 2,100,000
Avis 350,000
Net income

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Dollar 500,000 620,000 700,000

Avis 100,000

These results of operations reflect the amounts actually reported for each year, the amounts
reported for periods subsequent to the combination are based on the combination’s having been
treated as a purchase.
The revenues and income for both companies have been earned evenly throughout individual
years. For the first half of 2012, Dollar earned net income of 255,000 on revenue of P800,000
Avis earned P55,000 on revenue of P200,000. There were no intercompany transactions between
the two companies at any time. Dollar had 100,000 shares of common stock outstanding prior to
the combination

Required:
Present the amounts that would appear for 2011, 2012, and 2013 in Dollar Transport’s
comparative statement of comprehensive income prepared at the end of its fiscal year on
December 31,2013 for (1) revenues, (2) net income and (3) earnings per share.

2011 (a) 2012 2013

Revenue P1,400,000 P1,800,000 (b) P2,100,000
Comprehensive income 500,000 545,000 © 700,000
Earnings per share P 5.00 P 4.84 (d) P 5.60 (e)

(a) Separate figures for Dollar Transport only.

(b) P2,000,000 – P200,000
(c) P620,000 - P55,000
(d) P545,000 / 112,000 shares (100,000 + 125,000) ÷ 2
(e) P700,000 / 125 shares

Problem 14-9
Peter Industries, Inc. entered into a business combination agreement with Honey Chemical
Corporation (HCC). Under the terms of the agreement, Peter Industries issued 180,000 shares of
its P1 par common stock in exchange for all the assets and liabilities of HCC. The Peter Industries
shares then were distributed to the sharehodlesr of HCC and HCC was liquidation.

Immediately prior to the combination, HCC’s statement of financial position appeared as follows,
with fair values also indicated:
BOOK VALUES FAIR VALUES
Assets
Cash 28,000 28,000
Accounts receivable 258,000 251,500
Less: allowance for bad debts (6,500)
Inventory 381,000 395,000
Long term investments 150,000 175,000
Land 55,000 100,000
Rolling stock 130,000 63,000
Plant and equipment 2,425,000 2,500,000
Less: accumulated depreciation (614,000)

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Patents 125,000 500,000

Special licenses 95,800 100,000
Total assets 3,027,300 4,112,500

Liabilities
Current payables 137,200 137,200
Mortgages payable 500,000 520,000
Equipment trust notes 100,000 95,000
Debentures payable 1,000,000 950,000
Less; discount on debentures (40,000)
Total liabilities 1,697,200 1,702,200

Stockholder’s Equity
Common Stock (P5 par) 600,000
Additional Paid-in Capital
From Common stock 500,000
Additional paid-in capital from
Retirement of preferred 22,000
Retained earnings 220,100
Less: treasury stock (1,500) (12,000)
Total liabilities and equity 3,027,300

Immediately prior to the combination Peter Industries common stock was selling for P14 per
share. Peter industries incurred professional fees of P135,000 in arranging the business
combination and P42,000 stock issue costs.

a.Prepare all jounal entries that Peter Industries should have entered on its books to record
the acquisition
Books of Peter Industries:

(1) To record acquisition of net assets:

Cash 28,000
Accounts receivable 258,000
Inventory 395,000
Long-term investments 175,000
Land 100,000
Rolling stock 63,000
Plant and equipment 2,500,000
Patents 500,000
Special licenses 100,000
Discount on equipment trust notes 5,000
Discount on debentures 50,000
Goodwill 109,700
Allowance for bad debts 6,500
Current payables 137,200
Mortgage payables 500,000
Premium on mortgage payable 20,000
Equipment trust notes 100,000
Debenture payable 1,000,000
Common stock 180,000

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APIC – common 2,340,000

Computation of Goodwill
Price paid (180,000 shares x P14) P2,520,000
Less: fair value of net identifiable assets acquired
Total assets P4,112,500
Total liabilities (1,702,200) 2,410,300
Goodwill P 109,700

(2) To record acquisition-related costs:

Additional paid in capital 42,000
Acquisition expenses 135,000
Cash 42,000

Problem 14-9, continued:

b. Present all jounal entries that should have been entered on the books of HCSS to record
the combination and distribution of the stock received.
Books of HCC:

Common stock 7,500

APIC – Common 4,500
Treasury stock 12,000
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 – P7,500

Investment in stock - Peter 2,520,000

Allowance for bad debts 6,500
Accumulated depreciation 614,000
Current payable 137,200
Mortgage payable 500,000
Equipment trust notes 100,000
Debentures payable 1,000,000
Discount on bonds payable 40,000
Cash 28,000
Accounts receivable 258,000
Inventory 381,000
Long-term investments 150,000
Land 55,000

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Rolling stock 130,000

Plant and equipment 2,425,000
Patents 125,000
Special licenses 95,800
Gain on sale of assets and liabilities 1,189,900
To record sale of assets and liabilities to Peter.

Common stock 592,500

APIC – Common 495,500
APIC – Retirement of preferred 22,000
Retained earnings 1,410,000
Investment in stock – Peter 2,520,000
To record retirement of HCC stock and distribution of
Peter Industries stock:
P592,500 = P600,000 - P7,500
P495,500 = P500,000 – P4,500
P1,410,000 = P220,000 + P1,189,900

Problem 14-10
On January 1, 2013 Subic Company issued shares of its P5 par value stock to acquire all the
shares of Clark Inc. Company, which was liquidated immediately thereafter. The Statement of
Financial Position for Subic Company and Statement of Financial Position for the combined
company under the purchase method are presented below:
SUBIC COMPANY COMBINED COMPANY
Cash 70,000 100,000
Accounts receivable 130,000 180,000
Inventory 100,000 220,000
Land 100,000 175,000
Buildings and equipment 400,000 550,000
Less: accumulated depreciation (150,000) (150,000)
Goodwill 55,000
Total Assets 650,000 1,130,000

Accounts Payable 40,000 60,000

Bonds payable 100,000 160,000
Common stock 200,000 240,000
Additional paid-in capital 60,000 420,000
Retained earnings 250,000 250,000
Total liabilities and equities 650,000 1,130,000

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a. What was the value of the shares issued by Subic Company to acquire Clark, Inc.
Company?
Increase in capital stock (P240,00 – P200,000) P 40,000
Increase in APIC (P420,000 – P60,000) 360,000
Value of shares issued P 400,000

b. What was the fair value of the net assets held by Clark Inc. immediately before the
combination?
Total assets after combination P1,130,000
Total assets of Subic before combination 650,000
Total fair value of assets of Clark before combination P 480,000

Total liabilities after combination P220,000

Total liabilities of Subic before combination (140,000) ( 80,000)
Fair value of Clark’s net assets (including goodwill) P 400,000
Less: Goodwill 55,000
Fair value of Clark’s net assets before combination P 345,000

c. How many shares of Subic Company were issued in completing the combination?
Par value of common stock after combination P 240,000
Par value of common stock before combination 200,000
Increase in par value P 40,000
Divided by par value per share ÷ P5
Number of shares issued 8,000 shares

d. What was the market price per share of Subic Company stock at the date of
combination?
Value of shares computed in (a) P 400,000
Number of shares issued computed in © ÷ 8,000
Market price per share P 50

Problem 14-11
On May 6,2013 Papa Corporation acquired all of Son Company’s assets and liabilities by issuing
its P5 par common stock. Son’s P10 par value common shares had a market price of P55 each at
the time of combination.

Required:
Using the partial statement of Financial Position for Papa Corporation and Son Company prior to
the business combination and immediately following the combination presented on the next page,
answer the following questions:

a. What was the book value of Son’s inventory at the date of combination?
Inventory reported by Son at date of combination was P70,000
(325,000 – P20,000 – P55,000 – P140,000 – P40,000)

b. What was the fair value of total assets reported by Son at the date of combination?
Fair value of total assets reported by Son:

Fair value of cash P 20,000

Fair value of accounts receivable 55,000
Fair value of inventory 110,000

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Buildings and equipment reported following purchase P570,000

Buildings and equipment reported by Papa (350,000) 220,000
Fair value of Son’s total assets P405,000

c. What was the market value of Son’s bonds at the date of combination?
Market value of Son’s bond:

Book value reported by Son P100,000

Bond premium reported following purchase 5,000
Market value of bond P105,000

Problem 14-11, continued:

d. How many shares of common stock did Papa issue in completing the acquisition of Son?
Shares issued by Papa Corporation:

Par value of stock following acquisition P190,000

Par value of stock before acquisition (120,000)
Increase in par value of shares outstanding P 70,000
Divide by par value per share ÷ P5
Number of shares issued 14,000

e. What was the market price per share of Papa’s stock at the date of combination?
Market price per share of stock issued by Papa Corporation

Par value of stock following acquisition P190,000

Additional paid-in capital following acquisition 262,000 P452,000

Par value of stock before acquisition P120,000

Additional paid-in capital before acquisition 10,000 (130,000)
Market value of shares issued in acquisition P322,000
Divide by number of shares issued ÷ 14,000
Market price per share P 23.00

f. What amount of goodwill will be reported following the business combination?

Goodwill reported following the business combination:

Market value of shares issued by Papa P322,000

Fair value of Son’s assets P405,000
Fair value of Son’s liabilities:
Accounts payable P 30,000
Bond payable 105,000
Fair value of liabilities (135,000)
Fair value of Son’s net assets (270,000)
Goodwill recorded in business combination P 52,000
Goodwill previously on the books of Papa 30,000
Goodwill reported P 82,000

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g. What amount of retained earnings did Son reported immediately before the combination?
Retained earnings reported by Son at date of combination was P90,000
(P325,000 – P30,000 – P100,000 – P50,000 – P55,000)

h. What amount of retained earnings will be reported following the business combination?
Papa’s retained earnings of P120,000 will be reported.
PAPA SON COMPANY
Book Value Book Value Fair Value Combined
Cash 50,000 20,000 20,000 70,000
Accounts receivable ? 55,000 55,000 145,000
Inventory 100,000 ? 110,000 210,000
Equipment (net) 350,000 140,000 ? 570,000
Goodwill 30,000 40,000 - ?
Total assets 620,000 325,000 ?? 1,077,000

Accounts Payable 70,000 30,000 30,000 100,000

Bonds payable 300,000 100,000 ? 400,000
Bonds premium - - 5,000
Common stock 129,000 50,000 190,000
APIC 10,000 55,000 262,000
Retained earnings 120,000 ? ?
Total equities 620,000 325,000 ? 1,077,000

In addition to the requirement above, assume that prior to the time the business combination was
completed, Papa paid profesiional fees of P8,500 and P6,300 for stock registration and transfer
fees in connection with the combination:

1. Give the journal entry or entries recorded by Papa for these costs
Acquisition expense 8,500
Additional paid-in capital 6,300
Cash 14,800

2. Taking these additional costs into consideration, what amount of goodwill will be
reported by the combined entity following the business combination?
Goodwill previously computed (no changes) P82,000

3. What amount of paid in capital will the combined entity report following the
business combination
Additional paid-in capital reported following combination P262,000
Stock issue costs (6,300)
Total additional paid-in capital reported P255,700

Problem 14-12

(1) Liability from contingent consideration 80,000

Loss on contingent payment 40,000
Cash 120,000

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2 x (average income of P110,000 – P50,000) = P120,000

(2) Additional paid in capital 12,000

Common stock, P1 par 12,000
2 x (average income of P110,000 – P50,000) ÷ P10

(3) Additional paid in capital 100,000

Common stock, P1 par 100,000
Deficiency (P12 – P8) x 200,000 shares P800,000
Divided by fair value per share ÷ 8
Additional shares to be issued 100,000 shares

Problem 14-13

(1) To record the acquisition of net assets of Baby Company:

Current assets 256,000

Non-current assets 660,000
Goodwill 761,000
Current liabilities 162,000
Non-current liabilities 440,000
Estimated liability for contingent consideration 75,000
Cash 400,000
Common stock, (15,000 shares x P4) 60,000
Additional paid in capital (15,000 shares x P36) 540,000

Goodwill computation:
Price paid:
Cash P 400,000
Common stock (15,000 shares x P40) 600,000
Contingent consideration (P100,000 x 75%) 75,000
Total price paid 1,075,000
Less: Fair value of net assets acquired
Current assets P 256,000
Non-current assets 660,000
Current liabilities ( 162,000)
Non-current liabilities ( 440,000) 314,000
Goodwill P 716,000

(2) Goodwill 15,000

Estimated liability for contingent consideration 15,000
(P100,000 x 90%) - P75,000

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Problem 14-14

(1) Price paid P500,000

Less: Fair value of net assets acquired 400,000
Goodwill recorded P100,000

(2 – a) No, because the carrying amount of the net assets of the business is less
than the recoverable of the unit.

(2 – b) Yes.

Estimated recoverable amount of the unit P400,000

Carrying value of the unit, excluding goodwill 340,000
Implied fair value of the goodwill 60,000
Existing recorded goodwill (No. 1) 100,000
Estimated impairment loss P(40,000)

Entry:
Impairment loss 40,000
Goodwill 40,000

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