Answer key

14-1: d

Price paid (8,000 shares x P30) P240,000

Contingent consideration 5,000

Acquisition cost P245,000

14-2: b

Purchase price P250,000

Less: Fair value of net assets acquired 180,000

Goodwill P70,000

14-3: c

Purchase price (100,000 shares x P36) P3,600,000

Contingent consideration 120,000

Total costs P3,720,000

14-4: d

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

APIC (600,000 shares xP40) P30,000 23,970,000

Increase in CJs equity P29,970,000

14-5: d

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

Cost of issuing stock certificates 3,000

Documentary stamp tax 20,000

Total P35,000

14-6: a (at fair value at date of acquisition)

14-7: d
 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: a

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)

Price paid P 700,000

Less: Fair value of net assets acquired (P600,000 P188,000) 412,000

Goodwill P 288,000

Avons assets 2,000,000

Bells assets at fair value 600,000

Total assets P2,888,000

14-10: c
 Debit to expenses:

Brokers fee P 50,000

Pre-acquisition audit fee 40,000

General administrative costs 15,000

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: d

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

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)

Polos 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: d

Price paid P1,400,000

Less: Fair value net assets acquired 1,350,000

14-13: a

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

14-14: c

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: b
 Price paid P1,000,000

Less: Fair value of identifiable assets acquired 800,000

Goodwill P 200,000

MMs net assets at book value 1,200,000

PPs net assets at fair value 800,000

Total assets after combination P2,200,000

14-16: c, Under the acquisition method assets are recorded at their fair values (P225.000)

14-17: d

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: a

Income from acquisition P 100,000

Fair value of net assets acquiredP2,000,000 P400,000) 1,600,000

Price paid 1,500,000

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

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: c

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: a
 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: a

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: a

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: a

Stockholders equity before acquisition A Company P1,300,000

Capital stock issued at par (229,000 shares x P10) 2,290,000

Other acquisition cost (reduction from retained earnings) (20,000)

Stockholders equity after acquisition 6,308,000

14-26: 1. a

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

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

Total depreciation P63,500

2. b

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: b

Price paid P32 M

Final fair value of net assets 28 M

Goodwill P 4 M
PROBLEMS

Problem 14-1

1. 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

Property, plant and equipment 300,000

Current liabilities ( 50,000) 510,000

Income from acquisition P( 10,000)

2. Books of Small Corporation

(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

(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)

(2) To record acquisition-related costs:

Cash 5,000

Problem 14-3

(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