37 CHAPTER 14

MULTIPLE CHOICES - COMPUTATIONAL 14-1: d Price paid (8,000 shares x P30) Contingent consideration Acquisition cost 14-2: b Purchase price Less: Fair value of net assets acquired Goodwill 14-3: c Purchase price (100,000 shares x P36) Contingent consideration Total costs 14-4: d Price paid (600,000 shares x P50) Less: goodwill recorded Fair value of net assets acquired Capital stock issued (600,000 shares x P10) APIC (600,000 shares xP40) P30,000 Increase in CJs equity 14-5: a Price paid Less: Fair value of net assets acquired Current assets Plant assets Liabilities Income from acquisition APIC: [(P2,550,000 P1,200,000) - P15,000] P2,550,000 P1,100,000 2,200,000 ( 300,000) P30,000,000 6,120,000 P23,880,000 P 6,000,000 23,970,000 P29,970,000 P3,600,000 120,000 P3,720,000 P250,000 180,000 P70,000 P240,000 5,000 P245,000

3,000,000 P( 450,000) P1,335,000

14-6:

a (at fair value at date of acquisition)

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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 Less: Fair value of net assets acquired Cash Inventory Property, plant and equipment Liabilities Income from acquisition 14.9 a Price paid Less: Fair value of net assets acquired (P600,000 P188,000) Goodwill Avons assets Bells assets at fair value Total assets 14-10: c Debit to expenses: Brokers fee Pre-acquisition audit fee General administrative costs Legal fees for business combination Other acquisition costs Total Debit to APIC Audit fee for SEC registration of stock issue SEC registration fee for stock issue Total P 50,000 40,000 15,000 32,000 6,000 P 143,000 P 46,000 5,000 P 51,000 P 700,000 412,000 P 288,000 2,000,000 600,000 P2,888,000 P 800,000 P 160,000 380,000 1,120,000 ( 360,000)

1,300,000 P (500,000)

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14-11: d Consideration given: Cash Stocks issued at fair value Total Less: fair value of net assets acquired: Cash Inventories Other current assets Plant assets (net) Current liabilities Other liabilities Goodwill Total assets after combination: Total assets before combination Cash paid (P270,000 + P70,000) Registration and issuance costs of shares issued Polos assets after combination Assets acquired at fair values Goodwill Total assets after combination 14-12: d Price paid Less: Fair value net assets acquired Goodwill 14-13: a Price paid Less: Fair value of net identifiable assets acquired: Current assets P 80,000 Non-current assets 120,000 Liabilities ( 20,000) Income from acquisition Non- current assets 14-14: c Price paid Less: Fair value of identifiable assets acquired: Cash P 60,000 Merchandise inventory 142,500 Plant assets (net) 420,000 Liabilities (135,000) Goodwill P600,000 P160,000 P1,400,000 1,350,000 P 50,000 P270,000 330,000 P600,000 P40,000 100,000 20,000 180,000 (30,000) (40,000)

270,000 P330,000 P 760,000 (340,000) ( 30,000) P 390,000 340,000 330,000 P1,060,000

180,000 P(20,000) P120,000

487,500 P112,500

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14-15: b Price paid Less: Fair value of identifiable assets acquired Goodwill MMs net assets at book value PPs net assets at fair value Total assets after combination P1,000,000 800,000 P 200,000 1,200,000 800,000 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) APIC (10,000 shares x P40) Total 14-18: d, net assets are recorded at their fair values. 14-19: a Income from acquisition Fair value of net assets acquired P2,000,000 P400,000) Price paid Shares to be issued (P1,500,000 P40) 14-20: d Goodwill Fair value of net assets acquired Price paid Shares to be issued (P1,800,000 P40) 14-21: c Total assets of Pablo before acquisition at book value Total assets acquired from Siso at fair value (100,000 +440,000) Total assets Less: cash paid (15,000 + 25,000) Total assets after cash payment Goodwill to be recognized (Sched 1) Total assets after combination P 700,000 540,000 1,240,000 40,000 1,200,000 195,000 1,395,000 P 200,000 1,600,000 P1,800,000 45,000 shares P 100,000 1,600,000 1,500,000 37,500 shares P100,000 400,000 P500,000

Sched 1: Consideration given: Purchase price (30,000 shares x P20) 600,000 Contingent consideration 75,000 Fair value of net assets acquired (540,000 60,000) Goodwill

675,000 480,000 195,000

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14-22: a Capital stock issued at par (P500,000 + P300,000) APIC (50,000 + 300,000) 15,000 Retained earnings (P100,000 25,000) Stockholders equity after acquisition 14-23: a Consideration given Less: fair value of net assets acquired Goodwill Total goodwill recorded (250,000 + 268,000) 14-24: a A Company B Company C Company Cash paid for acquisition costs (P20,000 + P10,000) Goodwill (see 14-23) Total assets after combination 14-25: a Stockholders equity before acquisition Capital stock issued at par (229,000 shares x P10) Additional paid-in-capital [(229,000 x 12) 10,000] Other acquisition cost (reduction from retained earnings) Stockholders equity after acquisition 6,308,000 14-26: 1. a Equipment: P180,000/5 yrs. = Building: P550,000/20 yrs. = Total depreciation 2. b Price paid Less fair value of net assets acquired: Current assets Land Equipment Building Current liabilities Goodwill 14-27: b Price paid Final fair value of net assets Goodwill P36,000 27,500 P63,500 P900,000 P100,000 50,000 180,000 550,000 (150,000) B Company C Company P4,400,000 P638,000 4,150,000 370,000 P 250,000 P268,000 518,000 5,250,000 6,800,000 900,000 (30,000) 518,000 13,438,000 P1,300,000 2,290,000 2,738,000 (20,000) P 800,000 335,000 75,000 1,210,000

730,000 P170,000 P32 M 28 M P 4 M

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PROBLEMS
Problem 14-1 1. Books of Big Corporation (a) To record acquisition of net assets of Small: Accounts receivable Inventories Property, plant and equipment Current liabilities Income from acquisition Cash (b) To record acquisition-related costs: Acquisition expense Cash

120,000 140,000 300,000 50,000 10,000 500,000 5,000 5,000 P500,000

Computation of Income from Acquisition: Price paid 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) Income from acquisition 2. Books of Small Corporation (a) To record the sale of net assets to Big: Cash Current liabilities Accounts receivable Inventories Property, plant and equipment Retained earnings (b) To record liquidation of the corporation: Common stock Retained earnings Cash

510,000 P( 10,000)

500,000 50,000 120,000 100,000 280,000 50,000 200,000 300,000 500,000

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Problem 14-2 (1) To record the acquisition of net assets: Cash Inventory Building and equipment net Patent Accounts payable Cash Income from acquisition 50,000 150,000 300,000 200,000 30,000 565,000 105,000 P565,000 670,000 P(105,000) 5,000 5,000

Computation of Income from Acquisition Price paid Less: Fair value of net identifiable assets acquired Total assets P700,000 Accounts payable ( 30,000) Income from acquisition (2) To record acquisition-related costs: Acquisition expenses Cash Problem 14-3 (1) To record acquisition of net assets: Cash and receivables Inventory Building and equipment Goodwill Accounts payable Common stock, P10 par value Additional paid-in capital

50,000 200,000 300,000 40,000 50,000 60,000 480,000 P540,000 500,000 P 40,000

Computation of Goodwill Price paid (6,000 shares x P90) Less: fair value of net identifiable assets acquired Total assets P550,000 Accounts payable ( 50,000) Goodwill (2) To record acquisition-related costs: Additional paid-in capital Acquisition expenses Cash 25,000 15,000

40,000

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Problem 14-4 (1) To record acquisition of net assets: Cash Accounts receivable Inventory Land Building and equipment Bond discount Goodwill Accounts payable Bonds payable Common stock, P10 par value Additional paid-in capital 60,000 100,000 115,000 70,000 350,000 20,000 95,000 10,000 200,000 120,000 480,000 P600,000 505,000 P 95,000

Computation of Goodwill Purchase price (12,000 shares x P50) Less: Fair value of net identifiable assets acquired Total assets P695,000 Total liabilities ( 190,000) Goodwill (2) To record acquisition-related costs: Additional paid in capital Acquisition expense Cash

18,000 10,000 28,000

Problem 14-5 1. 2. 3. 4. 5. 6. 7. Common stock:: P200,000 + (8,000 shares x P10) Cash and receivables: P150,000 + P40,000 Land: P100,000 + P85,000 Building and equipment net: P300,000 + P230,000 Goodwill: (8,000 shares x P50) - P355,000 APIC: P20,000 + (8,000 shares x P40) Retained earnings P280,000 190,000 185,000 530,000 45,000 340,000 330,000

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Problem 14-6 Combined Statement of Financial Position After acquisition Based on P40/share P20/share Cash and receivables Inventory Building and equipment Accumulated depreciation Goodwill Total assets Accounts payable Bonds payable Common stock P10 Par value Additional paid-in capital Retained earnings(including income from acquisition) Total liabilities and stockholders equity P 350,000 645,000 1,050,000 (200,000) 180,000 P2,025,000 P 140,000 485,000 450,000 550,000 400,000 P2,025,000 P600,000 420,000 P180,000 P300,000 420,000 P(120,000) Based on P 350,000 645,000 1,050,000 (200,000) P1,845,000 P 140,000 485,000 450,000 250,000 520,000 P1,845,000

Computation of Goodwill Based on P40 per share: Price paid (15,000 shares x P40) Less: Fair value of net identifiable assets (P545,000 P125,000) Goodwill Computation of Income from Acquisition Based on P20 per share: Price paid (15,000 shares x P20) Less: Fair value of net identifiable assets Income from acquisition (added to retained earnings of Red) Problem 14-7 (a) Combined Statement of Financial Position January 1, 2011

ASSETS Cash and receivables Inventory Land Plant and equipment Less: Accumulated depreciation Goodwill Total assets LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities Capital stock, P20 par value Capital in excess of par Retained earnings

P 110,000 142,000 115,000 P540,000 150,000 390,000 13,000 P 770,000 P 100,000 214,000 216,000 240,000

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Total liabilities and stockholders equity
Problem 14-7, continued:

P 770,000

Computation of Goodwill Price paid (700 shares x P300) Less: Fair value of net identifiable assets acquired (P217,000 P20,000) Goodwill (b) Stockholders Equity section (1) With 1,100 shares issued Capital stock: P200,000 + (1,100 shares x P20) Capital in excess of par: P20,000 + (1,100 x P280) Retained earnings Total (2) With 1,800 shares issued Capital stock: P200,000 + (1,800 shares x P20) Capital in excess of par: P20,000 + (1,800 x P280) Retained earnings Total (3) With 3,000 shares issued Capital stock: P200,000 + (3,000 shares x P20) Capital in excess of par: P20,000 + (3,000 x P280) Retained earnings Total Problem 14-8 Revenue Net income Earnings per share
(a) (b) (c) (d) (e)

P210,000 197,000 P 13,000

P222,000 328,000 240,000 P790,000

P 236,000 524,000 240,000 P1,000,000

P260,000 860,000 240,000 P1,360,000

2010 (a) P1,400,000 500,000 P 5.00

2011 P1,800,000 (b) 545,000 P 4.84 (d)

2012 P2,100,000 700,000 P 5.60 (e)

Separate figures for Dollar Transport only. P2,000,000 P200,000 P620,000 - P55,000 P545,000 / 112,000 shares (100,000 + 125,000) 2 P700,000 / 125 shares

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Problem 14-9 a. Books of Peter Industries: (1) To record acquisition of net assets: Cash Accounts receivable Inventory Long-term investments Land Rolling stock Plant and equipment Patents Special licenses Discount on equipment trust notes Discount on debentures Goodwill Allowance for bad debts Current payables Mortgage payables Premium on mortgage payable Equipment trust notes Debenture payable Common stock APIC common 28,000 258,000 395,000 175,000 100,000 63,000 2,500,000 500,000 100,000 5,000 50,000 109,700 6,500 137,200 500,000 20,000 100,000 1,000,000 180,000 2,340,000

Computation of Goodwill Price paid (180,000 shares x P14) Less: fair value of net identifiable assets acquired Total assets P4,112,500 Total liabilities (1,702,200) Goodwill (2) To record acquisition-related costs: Additional paid in capital Acquisition expenses Cash 42,000 135,000

P2,520,000 2,410,300 P 109,700

42,000

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Problem 14-9, continued:

b.

Books of HCC: Common stock APIC Common Treasury stock To record retirement of treasury stock. P7,500 = P5 x 1,500 shares P4,500 = P12,000 P7,500 Investment in stock - Peter Allowance for bad debts Accumulated depreciation Current payable Mortgage payable Equipment trust notes Debentures payable Discount on bonds payable Cash Accounts receivable Inventory Long-term investments Land Rolling stock Plant and equipment Patents Special licenses Gain on sale of assets and liabilities To record sale of assets and liabilities to Peter. 7,500 4,500 12,000

2,520,000 6,500 614,000 137,200 500,000 100,000 1,000,000 40,000 28,000 258,000 381,000 150,000 55,000 130,000 2,425,000 125,000 95,800 1,189,900

Common stock 592,500 APIC Common 495,500 APIC Retirement of preferred 22,000 Retained earnings 1,410,000 Investment in stock Peter 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

2,520,000

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Problem 14-10 a. Increase in capital stock (P240,00 P200,000) Increase in APIC (P420,000 P60,000) Value of shares issued Total assets after combination Total assets of Subic before combination Total fair value of assets of Clark before combination Total liabilities after combination P220,000 Total liabilities of Subic before combination (140,000) Fair value of Clarks net assets (including goodwill) Less: Goodwill Fair value of Clarks net assets before combination c. Par value of common stock after combination Par value of common stock before combination Increase in par value Divided by par value per share Number of shares issued Value of shares computed in (a) Number of shares issued computed in Market price per share P 40,000 360,000 P 400,000 P1,130,000 650,000 P 480,000 ( 80,000) P 400,000 55,000 P 345,000 P 240,000 200,000 P 40,000 P5 8,000 shares P 400,000 8,000 P 50

b.

d.

Problem 14-11 a. b. Inventory reported by Son at date of combination was P70,000 (325,000 P20,000 P55,000 P140,000 P40,000) Fair value of total assets reported by Son: Fair value of cash Fair value of accounts receivable Fair value of inventory Buildings and equipment reported following purchase Buildings and equipment reported by Papa Fair value of Sons total assets c. Market value of Sons bond: Book value reported by Son Bond premium reported following purchase Market value of bond P100,000 5,000 P105,000 P 20,000 55,000 110,000 P570,000 (350,000) 220,000 P405,000

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Problem 14-11, continued:

d.

Shares issued by Papa Corporation: Par value of stock following acquisition Par value of stock before acquisition Increase in par value of shares outstanding Divide by par value per share Number of shares issued P190,000 (120,000) P 70,000 P5 14,000

e.

Market price per share of stock issued by Papa Corporation Par value of stock following acquisition Additional paid-in capital following acquisition Par value of stock before acquisition Additional paid-in capital before acquisition Market value of shares issued in acquisition Divide by number of shares issued Market price per share P190,000 262,000 P120,000 10,000 P452,000 (130,000) P322,000 14,000 P 23.00

f.

Goodwill reported following the business combination: Market value of shares issued by Papa Fair value of Sons assets Fair value of Sons liabilities: Accounts payable P 30,000 Bond payable 105,000 Fair value of liabilities Fair value of Sons net assets Goodwill recorded in business combination Goodwill previously on the books of Papa Goodwill reported P322,000 P405,000

(135,000) (270,000) P 52,000 30,000 P 82,000

g. h. i.

Retained earnings reported by Son at date of combination was P90,000 (P325,000 P30,000 P100,000 P50,000 P55,000) Papas retained earnings of P120,000 will be reported. 1. Acquisition expense Additional paid-in capital Cash Goodwill previously computed (no changes) Additional paid-in capital reported following combination Stock issue costs Total additional paid-in capital reported 8,500 6,300 14,800 P82,000 P262,000 (6,300) P255,700

2. 3.

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Problem 14-12 (1) Liability from contingent consideration 80,000 Loss on contingent payment 40,000 Cash 2 x (average income of P110,000 P50,000) = P120,000 Additional paid in capital Common stock, P1 par 2 x (average income of P110,000 P50,000) P10 Additional paid in capital Common stock, P1 par Deficiency (P12 P8) x 200,000 shares Divided by fair value per share Additional shares to be issued 12,000 12,000 100,000 100,000 P800,000 8 100,000 shares

120,000

(2)

(3)

Problem 14-13 (1) To record the acquisition of net assets of Baby Company:
Current assets Non-current assets Goodwill Current liabilities Non-current liabilities Estimated liability for contingent consideration Cash Common stock, (15,000 shares x P4) Additional paid in capital (15,000 shares x P36) 256,000 660,000 761,000 162,000 440,000 75,000 400,000 60,000 540,000

Goodwill computation: Price paid: Cash P Common stock (15,000 shares x P40) Contingent consideration (P100,000 x 75%) 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) Goodwill P (2) Goodwill Estimated liability for contingent consideration (P100,000 x 90%) - P75,000

400,000 600,000 75,000

314,000 716,000

15,000 15,000

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Problem 14-14 (1) Price paid Less: Fair value of net assets acquired Goodwill recorded P500,000 400,000 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 Carrying value of the unit, excluding goodwill Implied fair value of the goodwill Existing recorded goodwill (No. 1) Estimated impairment loss Entry: Impairment loss Goodwill 40,000 40,000 P400,000 340,000 60,000 100,000 P(40,000)

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