8.

Bats Inc, a new corporation formed and organized because of the recent consolidation of II Inc, and JJ
Inc., shall issue 10% participating preferred stocks with a par value of P100 for II and JJ net assets
contribution, and common shares with a par value of P50 for the difference between the total shares to be
issued and the preferred shared issued. The total shares to be issued by Bats shall be equivalent to
average annual earnings capitalized at 10%. Relevant data on II and JJ follows:

II JJ
Total assets P720,000 P921,600
Total liabilities 432,000 345,600
Annual earnings(average) 46,080 69,120

The total preferred shares to be issued and the amount of goodwill to be recognized by Bats are:

a. Preferred shares: 8,640 Goodwill: P288,000

b. Preferred shares: 5,760 Goodwill: P288,000
c. Preferred shares: 2,880 Goodwill: P864,000
d. Preferred shares: 7,280 Goodwill: P864,000

ANSWER: A

II JJ TOTAL
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at 10%
Total stock to be issued P1,152,000
Goodwill (for Common Stock) 864,000

Preferred stock (same with Net

Assets):
864,000/P100 par 8,640 shares