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PRACTICAL ACCOUNTING PROBLEMS II BUS]NEgS COMBINATION
DATE OF ACQUISTTTON
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ACOUTSITTON OF NET ASSET5 AND ACOUTSTTTON OJ SOCKS

PROBLEM 1.

STAR Corporation is a company involved in manufacturirrg cars. On January !, ZOL3, the board of directors
of the said company has declded'to acquire'the net assets of NOVA Corporation and RISE Corporation, quality
iuppti.o of materlafu they use in production. The merger is expected to result in producing higher
cars with lower total cost'

The deal was closed on February 29, 2013 and the following information was gathered from
the books of
the entiLies:

STAR NOVA RISE

Current assets P1,375,00C P390,000 P260,000
Noncurrent assets 3,125,000 2,550;000 1.700,000
Total assets P2,940,000 P1.960,000

P325 P210.000 P140,000

Common stock, P100 748,500 780,200 1,186,800
Additional 176,500 10e.gqq 113,200
Retained earninqs 1.250,00q I zgorooo 520,000
Totalequities P4.500,000 940,000 P1,960,00q

Star will lssue 22,500 of its common stock in,exchange for the net assets of Nova and 11,200 of its
common
stock in exchange for..the net asseti of Rise; the fair value of Star's shares is P150. In
'"' addition, .the
following adjustrients shhuld be made: :, :.
.-ir :

r Current assets cf floria and Rise have a fair rralue of P450,000 and P230,000 respectively'
r Noncurrent assets have a fair value of P2,150,000 and P1,975,000 for Nova and Rise, respectively'

Compute for the following balances of Star Company-on the date ol acquisition:
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Stockholders'equlty , l. ;i
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A. 'P6,118,500
|

B. P7,980,000 r.' ' '.

c. p:;+gs,soo :

D. P9,615,000 '!' '

. Assets :

A.' P10,290,000 i
B. P9,240,000
,.

c. P10,500,000
D. P9,840,000
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PROBLEM
'.
Denim Co. merged into Kraft Corp. on-July 1, 20t3. In exchange. for fhe net assets at fair market value of Denim
per
Co, amounting lo P696,450 , |qaft issued.68,00fl crurmon shardi at P9 par value with a market price of P12
share. t,

Out of pocket costs of the combination were as follows:

fees for the contract of combination

{gqitleelgrjEg.Egrelion Q[ :!99k issue- -- _.9!,qqq
Printinq costs of stock certiFicates _ _1_4fq9_

nccguntant's feg for pre dit

Other direct cost of
General and allocated -

Denim will pay an additionalcash conslderation of P455,000 in the event that Kraft's net'income will be equal or
greater tlran P950,000 for the period ended December 31, 2013, At aquisition date, there is a high probability of
ieaching the brget het income and the fair value of the additional ctrnslderation was determined to be P195,000.

Actual net income for the period ended December 31, 2013 amounted to P1,250,000. The additional cash
consideration was paid.

What is the amount of goodwill to be recognizal in the statement of financial position as of December 31,
2013?

A. P295,450
B. P308,500
c, P314,550
D. P326,550 .

What is the amoun[,bf e*pense to be recognized.in the statement of comprehensive income for the year
ended December 31, 2Oi3? ' ' :'
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A, P257,200
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B. P517,200,
c,. P307,400
. D. P412,500
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PROBLEM 3.

On October, l,
2OL3, Winner Corporation acquired all the assets and assumed all the liabilities of Getter
Company by issuing 20,000 shares wlth a fair value of P67.5 per share and an obligation to pay a
contingent consideration with a fair value of P750,000.

In addition.. Winner oaid

,rid the following
followinq acquisltion related costs:

Other direct cost glgsqgiglig!

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The Statement of Flnanclal Position as of Septer.rber 30, 2013'ot Winner and Getter, together with the fair
market value of the assets and liabilities are presented below: .
''
Winner Get ter
Boolt Value Fair Value Book Value Fair Value
Cash P640,000 P640,000 P35,.0!q ____P15.0!9
Accounts receivable 360,000 335,000 70,000 54,0!q
Inventories 475,000 390,000 87,000 78,000
Prepaid expenses 25,000 13,500 5,000
Land 2,000,000 2,900.000 900.000 1,550,000
Building 800,000 glqQ0q 723,000 *llr&000
Equipment 700,000 585,000 361,500 360.000
Gcodwill 300,000
Total assets P5,000,000 P5,750.000 P2,s00,000 P2,860,000

Accounts payable 312,500 312,500 200,000 200,000

Notes oavable 937,500 980,000 700,000 765.000
Qpi!aLq!q4, s! per 2,000,000 8s0.000
Adgitrslel pqrd ln capital 1,000,000 400,000
RetaineC earninos 750,000 350,000
Total equities P P2,500,000

Compute for the balances that will be shown on the October 7, 2013 statement of financial position of the
surviving company:
'.;t,,r ti
Retained earnings / /
,l
1. 'r
t-
,.r A. P480,000
' B. P54o,ooo
' .. , Q,. P526,000
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D. P475,000'
I
' assets i -
Total
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, A. P7,015,000 ' .: t'l'

, ,, B. P6,980r000 " n\
t;r, ' C. ')7,118,000 'n
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'',,-,
D.' P,i,491,000.

PROBLEM 4,

The Statement of Financial Position of Luster Corporation on June 30, 2013 is presented belowt

Current assets P32,s00

Land 4&ool
Building 110,000
Equipnqet 87,500
TotalAssdts P450,000

Liabilitles 87.s00
lqpitfgtock, 5 par 150,000
Additional paid in caoital 137,500
Retaiqq{ qarnings 75,000
Total esuities P450.000

Alt the assets and liabititiesof Luster assumed to approximate their fair values except for land and building.
It is estimated that the land have a fair value of P350,000 and the fair value of the building increased by
P80,000.
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P500;000. I
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Kernel Corporation acqulred 80o/o of Luster's capital stock for t : )

Assuming the consideration paid includes control premium of pt+Z,OOb, how much is the goodwill/(gain
onacqui5ition)ontheconso|idatdfinancialstatement1.
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A. P6o,ooo
B. P48,000 ' i l'/,,,'- : | \.' i

,C. P42,000 ' ' 'it'l

D. P50,000

Assurning the conslderation pald excludes control premium of P23,000 and the fair value of the non
controlling interest is PL22,750, how much is the goodwill/(gain on acquisition) on the consolidated
. financial statement?

A. P78,250
B. P73,250
c. P69,500 i

D. P74,750
Assuming the consideration paid includes control premium oF P37,000, how much is the goodwill/{gain
on acquisition) on the consolidated financial statement?

A. P43,250
B. P73,250

3: 533;li3

PROBLEM 5.

Better Company has galned control over the operations of Calm Corporation by acquiring B5o/o of its
outstanding capital stOck for P2,580,000. This amoutnt includes a control premium of P30,000. Acquisition
expenses, direct and indirect, amounted to P83,000 and 42,000 respectively

Calm
Booii value Book Value Fair Value
Cash'l p3,541,500 P128.000
Accountii receivable 300.000 325,C00
Inventorids ss0.000 360,000
rEll)r 148,500 125,000
Land 2,350,000 9ze'q9!
Buildinq 1,56o,ooo 558.000
Equlpment 300,000 L85q!9
Goodwill 300.000
Total assets P9,25!,.0!q PtgE9PW

Accounts pavable 6/5.000 253.000

![qtssp_eyable 1.,1qq,000
'- 730,000
Capital stock, 50 par 3,400,000 800,000
Additional paid in capital 1.575.000 g9-0,qq9
Retained earninos 1,70_0.Qq0 477,040
P8.750.000 __Ba!g_0,q!9_

The following was ascertained on the date of acquisition for Calm Corporation: ,

. The value of receivables and equioment has decreased by P25,000 and P14,000 respectively.
. The fair value of inventories is now P436,000 whereas the value of land and building has increased by
P471,000 and P107,000 respectively.
r There was an unrecorded'accounts payable amounting to P27,000 and the fair vatue ol1 notes is'
P738,000
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Compute for the,following balances to be presented in the consolidated statement of financial position
the date of business combination:

Total assets

A, P9,875,000
B, P10,093,000 r.
c. P10,112,000
D. P9,215,000

Total shareholder's equity

A. P7,000,000
B. P7,500,000
c. P8,200,000
D, P8,000,000 .l
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PROBLEM 6.

On January 2, ZOI3, the Statement of Financial Position of Pepper and Steak Company prior to the
combination are:
PepperCo. Steak Co'
Cash P 450,000 P 15,000
Inventories 300,000 30,000
Property and equipment (net) 750,000 105.000
Total Assets Pjtoa.O.[a PJ50000

Current Liabilities P 9o,0oo P 15,000

Common Stock, P100 par 150,000 15,000
Additional Paid in'Capital 45o,ooo 3o,ooo
Retained Earnings 810,000 90.000
Total Liabilities and Stockholder's Equity . ,
ruJ@*AgA PJSg*AAA

The fair value of Steakipompany's equiprnent ls" FJ.53,Q.00,

:i;

1.'Assuming Pepper,Conipany acquired:70o/o of the outstanding'common stock of Steak Company for

P105,000 and Non-cohtrolling. interest. is measured at fair value of P61,000, how much is the
goddwill (Oafn o.1 ,acquisitionf. ,.
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f,
,4. P(17,0001
"d. P17,000
rC. P23,100
D. P(23,100)

Assuming Pepper Company acquired B0o/o of the outstanding common stock of Steak Company for
P136,800 and Non-controlling inierest is measured at Non-controlling interest's proportionate share
of Steak Company's ldentifiable net assets, how much is the consolidated stockholder's equity on
the date of acquisltion?

A. P1,410,000
B. P1,419,600
c, PL,446,600
D. P1,456,200

? Assumlng Pepper Company acquired 90o/o of the outstbnding common stock of Steak Company for
P243,000 and Non-controlling interest is measured at fair value, how much is the total
acquisition? r,
consolidated assets on the date of
I

A.P1,542,000 !
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B, P1,785,000
c. Pt,737,000
D. P1,494,000
 ?age I
PROBLEM 7.

Acquirer Company acquires 25o/o of Acqulred Company's comrfion stock for P190,00O cash and carries
the investment using the cost method. After three fnonths, Parent purchases another 600/o of
Subsidiary's cornmon stock for P540,000. On this date, acquired company reports identifiable net assets
with carrying value of P720,000 and fair value of P920,000. The liabilities of the acquired company has
a book value and a fair value of P280,000. The fair value of the 15o/o non-controlling interest is
P125,000.

How much is the goodwill or (gain on acquisition)

.A P(17,000)
B, P250,000
C; P(30.000)
D. P263,00d
PROBLEM 8.

Condensed statements of financial position of Care Corp; and Charm Corp. as of Decernber 31, 2012 are
as foflows:
,) ,,

Care Charm
Current assets P 43,750 P 16,250
Noncurrent assets 181,250 106,250
Total assets P225,000 P 122,500

Liabilities P 16.2s0 P 8,750 l!,

Common stocks, P20 par 137,500 75,000
Additional Paid-in capital 750 6,250
Retained s00 32,500

On January 1, 2013, Care Corp. lssued 8,750 stocks with a market value of PZ5/share for the assets
and liabilities df Charm Corp. The book value reflects the fair value of the assets and liabilities,
except that the .noncurrent assets of Charm has a temporary appraisal of P157,500 and the
noncurrent ass€t-i; of Care are overstate(.. by P7,500. Contingent consideration, which is
determinable, ts eqLal to p3,750. Care also p8,500 and other
Wj-io, th,e stock isiuance costs worth
acquisition costs arhb{nting to P4,750,
'/
On March 1, 2013 thd"tontingent consideration hijs a determihable amount of P5,000. On :urlC t,
2013, the provisional fair value of the noncurrent assets of Charm increased by /
P2,250.
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How much is the combined total assets at the end of 2013?

A, P435,500
ts, P443,000
c. P442,000
P4442s0
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