MALONZO, VANESSA MAE E.

Multiple Choice 10 – D

Mons Company is planning to acquire Dandy Company whose statement of financial position
appears below.

Dandy Company
Statement of Financial Position
December 31, 2010

Assets Liabilities and Shareholder’s Equity

Current Assets P520,000 Current Liabilities P800,000

Property & Equipment 1,300,000 Ordinary Share Capital, P10 par 320,000
Retained Earnings 700,000
Total P1,820,000 Total P1820,000

An appraisal shows that the fair market value of the property and equipment is P1, 480,000.
Mons Company predicts that Dandy Company will have an average annual net income of P300,
000 in future years. This income is above the 10% per annum return on tangible assets
considered normal in the industry.

1. Assume that the excess earnings will prevail and will be capitalized at 25%, the estimated
goodwill to be recorded is
a. P720,000 c. P1,200,000
b. P780,000 d. P1,920,000

ANSWER: A

2. Assuming that Mons Company pays P1,500,000 cash and assumes the liabilities of
Dandy Company, the goodwill to be recognized is
a. P300,000 c. P780,000
b. P400,000 d. P1,500,000

ANSWER: A
Multiple Choice 10 – E

Abner, Inc., Bertha Inc., and Charlie, Inc. agreed to combine. Denise Inc., the new corporation,
will issue 5% fully participating Preference Share Capital and Ordinary Share Capital, both with
a par of P10. Relevant data are presented below.

Asset Contribution Expected Annual Earnings

Abner, Inc. P400,000 P36,000
Bertha, Inc. 800,000 80,000
Charlie, Inc 800,000 96,000

Denise shall issue preference shares for net assets transferred and ordinary shares for the
difference between total shares entitled and preferences shares received. Earnings are to be
capitalized at 8%.

What will be the ordinary shares to be distributed to Abner, Bertha, and Charlie?

a. Abner: 1,105 Bertha: 2,470 Charlie: 2,925

b. Abner: 7,500 Bertha: 12,500 Charlie: 40,000
c. Abner: 5,000 Bertha: 20,000 Charlie: 40,000
d. Abner: 1,300 Bertha: 2,600 Charlie: 2,600

ANSWER: C

Multiple Choice 10 – F

To comply with certain capital requirements, Companies A, B and C agreed to combine. The
new corporation which takes over the three companies will be known as CAB Corporation. The
following pertinent information on the three companies were gathered:

Company A Company B Company C

Total Assets P 1,100,000 P1,500,000 P1,200,000
Total Liabilities 800,000 900,000 800,000
Average annual net income 105,000 240,000 136,000

Additional Information:

 Total assets and liabilities presented above are at audited value and have been agreed
upon the three companies as basis for consolidation.
 CAB Corporations will issue 10%, P100 par value, cumulative preference shares for net
assets contributed, and P100 par value ordinary shares for earnings in excess of 15%
normal rate of return, to be capitalized at 20%
  Cash equivalent to 50% of the par value of Ordinary Share Capital to be issued will be
paid by stockholders of the three companies and will be treated as Additional Paid-in
Capital – Ordinary shares.

1. The total number of preference shares to be issued is

a. 12,900 c. 13,700
b. 13,000 d. 38,000

ANSWER: B

2. Additional Paid-in Capital – Ordinary shares is

a. P377,500 c. P487,500
b. P429,000 d. P715,000

ANSWER: D