Book Value Fair Value Book Value Fair Value

Problem 1
On December 1, 2019 Aurora Corporation enters into a business combination by acquiring

the assets and assumed the liabilities of Selena Corporation in which Selena Corporation
will be dissolved. Aurora’s consideration transferred consists of the following:
a. 40,000 shares of its P10 par common stock with a market value of P20 per
share.
b. A contingent payment of 150,000 cash on January 1, 2022, if the average

income of during the 2-year period of 2020 and 2021 exceeds 120,000 per year.
Aurora Corporation estimates that there is a 40% chance or probability that the
150,000 payment will be required.
In addition, Aurora pays the following at the time of the merger:
a) Accounting Fees - 15,000
b) Legal fees to effect business combination - 25,000
c) Indirect Cost of combining, including allocated overhead and management

salaries - 30,000
d) Cost of printing and issuing stock certificates - 11,000
Balance Sheet and fair value information for the two companies on December 1, 2019
before the merger as follows:
Aurora Selena
Book Value Fair Value Book Value Fair Value
Cash 250,000 250,000 30,000 30,000
Accounts Receivables 100,000 100,000 20,000 20,000
Inventories 280,000 300,000 40,000 25,000
Land 500,000 600,000 380,000 435,000
Building-net (10-year life) 400,000 450,000 350,000 400,000
In-process research and development - - - 60,000
Total Assets 1,530,000 870,000
Accounts Payable 200,000 200,000 50,000 50,000
Bonds Payable 180,000 170,000 140,000 160,000
Common stock, P10 par 800,000 400,000

Additional paid-in capital 200,000 180,000
Retained Earnings 150,000 100,000
Total Liabilities and Equities 1,530,000 870,000
Required:
1. Journal entries by Aurora Corporation to record the acquisition.
2. Prepare the balance sheet of Aurora after the acquisition.
3. Assume that the value of the Building was provisionally determined on

December 1, 2019. On January 1, 2020, Aurora Corporation received the final
value from independent appraisal, the fair value at acquisition date being
P460,000. the Building have a salvage value of P40,000. Provide the entry on
January 1 to reflect the adjustment.
4. Assume that on April 1, 2020 because of improved information about facts and
circumstances the contingent consideration was revised to an expected value
of P70,000. Provide the entry on April 1.
4.1 On October 1, 2020 the probability value of the contingent consideration

amounted to P55,000. Provide the entry on October 1.
4.2 On December 1, 2020 the expected value of the contingent consideration

amounted to P85,000. Provide the entry on December 1.
4.3 On January 1, 2022 the average income of Aurora Corporation is P140,000

and 2021 is P160,000. Provide the entry on January 1 of the settlement of
contingent consideration.
Consideration Transferred 800,000
Contingent Consideration (150,000*40%) 60,000
Total Consideration Paid 860,000
Less: FV of Net Assets 760,000
Goodwill 100,000
Requirement 1
Cash 30,000
Account Receivables 20,000
Inventories 25,000
Land 435,000
Buildings-net (10-year life) 400,000
In-process research and development 60,000
Goodwill 100,000
Accounts Payable 50,000
Bonds Payable 160,000
Contingent Consideration 60,000
Common Stock, P10 par 400,000
Addt'l Paid-In-Capital 400,000
Acquisition Cost Expense 70,000
Cash 70,000
Cash 11,000
To record the acquisition of Aurora

Corporation
Requirement 2
Aurora Corporation
Balance Sheet
As of December 31, 2019
Cash 199,000 Accounts Payable 250,000
Accounts Receivables 120,000 Bonds Payable 340,000
Inventories 305,000 Contingent Consideration 60,000

Land 935,000 Common stock, P10 par 1,200,000
Buildings-net (10-year life) 800,000 Additional paid-in capital 589,000
In-process research and development 60,000 Retained Earnings 80,000
Goodwill 100,000 Total Liabilities & Equity 2,519,000
Total Assets 2,519,000
Requirement 3
Goodwill 60,000
To adjust the fair value at acquisition

date of the building.
Dep. Exp. - Building (((400-40)/10)*1/12) 3,000
Acc. Dep. - Building 3,000
To record depreciation expense of the

building for 2019
Dep. Exp. - Building ((460-40)/10) 42,000
Acc. Dep. - Building 42,000
To record depreciation expense of the

building for 2019
Requirement 4
Goodwill 10,000

To record the revision of expected value of
the contingent consideration on Apr. 1,
2020.
Gain on Contingent Consideration 15,000
To record the probability value of the

contingent consideration on Oct. 1, 2020.
Loss on Contingent Consideration 30,000
To record the expected value of the

contingent consideration on Dec. 1, 2020.
Loss on Contingent Consideration 65,000
Cash 150,000
To record the settlement of the contingent

consideration on Jan. 1, 2020.
Estimated Contingent Consideration for Liability
60,000 Bldg. adjustment
10,000 Apr. 1 inc. due to bldg
Oct. 1 reduction 15,000 70,000 Apr. 1 exp. value

55,000 Oct. 1 prob. value
30,000 Loss
85,000 Dec. 1 exp. value
Problem 2
Assuming the same information in Problem 1, except that the consideration transferred is
as follows:
share.
b. A contingent payment of 120,000 cash on January 1, 2021, if the cash flows

from operations exceeds P210,000 in 2020. Aurora Corporation estimates that
there is a 30% chance or probability that the 120,000 payment will be required.
Aurora Corporation uses an interest rate of 5% to incorporate the time value of
money.
Required:
3. On December 31, 2020 the cash flow from operations amounted to P230,000.
Provide the entry on January 1, 2021 of the settlement of contingent
consideration.
3.1 Assume that the cash flow from operations amounted to P190,000.
Provide the entry on January 1, 2021 of the settlement of contingent
consideration.
Contingent Consideration (120,000*30%*0.9524) 34,286.4
Total Consideration Paid 664,286.4

Bargain Purchase Gain 95,713.6
Requirement 1
Cash 30,000
Inventories 25,000
Land 435,000
Contingent Consideration 34,286.4
Bargain Purchase Gain 95,713.6
Cash 70,000
Cash 11,000

Corporation
Requirement 2
Aurora Corporation
Balance Sheet
Inventories 305,000 Contingent Consideration 34,286.4
In-process research and development 60,000 Retained Earnings 175,713.6
Total Assets 2,419,000 Total Liabilities & Equity 2,419,000
Requirement 3
Loss on Contingent Consideration 85,713.6
Cash 120,000

Gain on Contingent Consideration 34,286.4

Problem 3
as follows:
share.
b. A contingent payment of 110,000 cash on January 1, 2021, if the earnings
exceed P300,000. Aurora estimates that there is a 50% chance or probability
that the 110,000 payment will be required. Moreover, Aurora Corporation also
agreed to issue additional shares of common stock if the target earnings will be
met. The additional 1,500 shares expected to be issued are valued at P30,000.
Required:
3. On December 31, 2020 the earnings amounted to P330,000. Provide the entry
of the settlement of stock contingent consideration.
3.1 Assume that the earnings amounted to P280,000. Provide the entry of the
settlement of stock contingent consideration.
Contingent Consideration (110,000*50%) 55,000
Additional Stock 30,000
Goodwill 85,000
Requirement 1
Cash 30,000
Inventories 25,000
Land 435,000
Goodwill 85,000
Addt'l Paid-In-Capital-Cont. Cons. 30,000
Cash 70,000
Cash 11,000

Corporation
Requirement 2
Aurora Corporation
Balance Sheet

Inventories 305,000 Contingent Consideration 55,000
In-process research and development 60,000 APIC-Cont. Cons. 30,000
Goodwill 85,000 Retained Earnings 80,000
Total Assets 2,504,000 Total Liabilities & Equity 2,504,000
Requirement 3
Common Stock (1,500 @ P10 par) 15,000
To record the settlement of stock contingent

consideration on Dec. 31, 2020
APIC from not meeting the Cont. Cons. 30,000
To record the settlement of stock contingent

consideration.
Problem 4
as follows:
share.
b. Aurora Corporation also agreed to issue sufficient shares of common stock to

ensure a total value of P800,000 if the fair value of the acquirer shares fall
below P32 per share on December 31, 2020. Aurora Corporation estimates that
there is a 45% of probability that the 25,000 shares will have a market value of
P600,000 and a 55% probability that the market value of the shares will exceed
P800,000. Aurora Corporation uses an interest rate of 6% to incorporate the
time value of money.
Required:
3. On December 31, 2020 the market price per share is P25. Provide the entry of
the settlement of stock contingent consideration.
Contingent Consideration ((800,000-600,000)*45%*0.9434) 84,906
Goodwill 124,906
Requirement 1
Cash 30,000
Inventories 25,000
Land 435,000
Goodwill 124,906

Cash 70,000
Cash 11,000

Corporation
Requirement 2
Aurora Corporation
Balance Sheet
Inventories 305,000 Common stock, P10 par 1,050,000
Land 935,000 Additional paid-in capital 750,000
Buildings-net (10-year life) 800,000 APIC-Cont. Cons. 84,906
In-process research and development 60,000 Retained Earnings 69,000
Goodwill 124,906 Total Liabilities & Equity 2,543,906
Total Assets 2,543,906
Requirement 3
APIC-Cont. Cons. 84,906
Common stock ((P32-P25)*25,000/250%) 70,000

Addt’l paid-in capital 14,906
To record the settlement of stock contingent consideration on Jan. 1, 2021.
Problem 5
Layla Company is acquired by Miya Company with Layla Company going to liquidation.
The terms of acquisition are as follows:
a. Miya Company pays P1,600,000 in cash to the previous shareholders of Layla

Company.
b. Miya Company issued P100,000 common shares at P8 par with a fair value of
P11.
c. Costs of liquidation of P7,000 are to be paid by Layla Company with funds

supplied by Miya Company.
d. Supply of a patent relating to the manufacturing business of Miya Company.

This has a fair value of P190,000 but has not been recognized in the records of
Miya Company because it resulted from an internally generated research
project.
e. Layla Company included in the notes is a contingent liability to a guarantee for

a loan. Although a present obligation existed, a liability was not recognized by
Layla Company because of the difficulty of measuring the final amount to be
paid. It was considered to have a fair value of P8,000.
f. Miya Company was obligated to pay an additional P24,000 to the vendors of

Layla Company if the Layla Company maintained existing profitability over the
subsequent two years from acquisition date. It was highly likely that Layla
Company would achieve this expectation and the fair value of the contingent
consideration was assessed at its expected value of P24,000.
Trial Balance of Layla Company as of June 30, 2019.
Debit Credit
Cash 150,000
Accounts Receivable 800,000 Miya Company assess the fair

value of the identifiable assets
Inventories 1,130,000
and liabilities of Layla Company
Equipment 1,200,000 as follows:
Accumulated Depreciation 150,000

Accounts Payable 250,000 Inventories 1,200,000
Loan Payable 100,000 Accounts Receivable 745,000
Common Stock 480,000 Equipment 1,150,000
Additional paid-in capital 1,500,000 Accounts Payable 200,000
Retained earnings 800,000
Required:
1. Journal entries by Miya Corporation to record the acquisition.
2. Provide the adjustment if on September 30, 2019 the additional payment to vendors of
Layla Company was reassessed at P28,000.
3. Journal entries by Miya Corporation to record the acquisition if the consideration

transferred includes an estimated liability for the lawsuit of P60,000 and estimated
liability for contingent consideration to the shareholders if P10,000. the acquisition
contract specifies the following condition:
 If the settlement is resolved with a smaller (larger) outlay than anticipated (P60,000),
the shareholders of Layla Company will receive additional (reduced) consideration
accordingly, thus adjusting the contingent liability above or below P10,000.
4. Provide the adjustment if on October 1, 2019, new information reveals:
 The estimated liability for the lawsuit to be P64,000, and
 The estimated liability for the contingent consideration to the shareholders

amounted to P8,500.
Requirement 1
Consideration Transferred
Cash 1,600,000
Common shares 1,100,000
Cost of liquidation 7,000
Patent 190,000
Additional contingent consideration 24,000

Total Consideration Paid 2,929,000
Less: FV of Net Assets 2,945,000
Bargain Purchase Gain 16,000
Cash 150,000
Equipment 1,150,000
Loan Payable 100,000
Cash 1,607,000
Patent 190,000
Est. Liab. for Contingent Consideration 32,000
To record the acquisition of Miya

Corporation
Requirement 2
To record the adjustment of the contingent

consideration on Sept. 30, 2019
Requirement 3
Cash 1,600,000
Patent 190,000
Addt’l cont. consideration to shareholders 10,000
Est Liab. For Lawsuit 60,000
Goodwill 54,000
Cash 150,000
Equipment 1,150,000
Goodwill 54,000
Loan Payable 100,000
Cash 1,607,000
Patent 190,000
Est. Liab. For lawsuit 60,000

To record the acquisition of Miya
Corporation
Requirement 4
Cash 1,600,000
Patent 190,000
Addt’l cont. consideration to shareholders 8,500
Est Liab. For Lawsuit 64,000
Goodwill 56,500
Goodwill 2,500
Est. Liab. For lawsuit 4,000
To record the adjustment on Oct. 1, 2019 of

Miya Corporation

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Problem 1

On December 1, 2019 Aurora Corporation enters into a business combination by acquiring

b. A contingent payment of 150,000 cash on January 1, 2022, if the average

In addition, Aurora pays the following at the time of the merger:

a) Accounting Fees - 15,000

b) Legal fees to effect business combination - 25,000

c) Indirect Cost of combining, including allocated overhead and management

d) Cost of printing and issuing stock certificates - 11,000

Book Value Fair Value Book Value Fair Value

Cash 250,000 250,000 30,000 30,000

Accounts Receivables 100,000 100,000 20,000 20,000

Inventories 280,000 300,000 40,000 25,000

Land 500,000 600,000 380,000 435,000

Building-net (10-year life) 400,000 450,000 350,000 400,000

In-process research and development - - - 60,000

Total Assets 1,530,000 870,000

Accounts Payable 200,000 200,000 50,000 50,000

Bonds Payable 180,000 170,000 140,000 160,000

Common stock, P10 par 800,000 400,000

Retained Earnings 150,000 100,000

Total Liabilities and Equities 1,530,000 870,000

1. Journal entries by Aurora Corporation to record the acquisition.

2. Prepare the balance sheet of Aurora after the acquisition.

3. Assume that the value of the Building was provisionally determined on

4.1 On October 1, 2020 the probability value of the contingent consideration

4.2 On December 1, 2020 the expected value of the contingent consideration

4.3 On January 1, 2022 the average income of Aurora Corporation is P140,000

Consideration Transferred 800,000

Contingent Consideration (150,000*40%) 60,000

Total Consideration Paid 860,000

Less: FV of Net Assets 760,000

Buildings-net (10-year life) 400,000

In-process research and development 60,000

Accounts Payable 50,000

Bonds Payable 160,000

Contingent Consideration 60,000

Common Stock, P10 par 400,000

Addt'l Paid-In-Capital 400,000

Acquisition Cost Expense 70,000

Addt'l Paid-In-Capital 11,000

To record the acquisition of Aurora

As of December 31, 2019

Cash 199,000 Accounts Payable 250,000

Accounts Receivables 120,000 Bonds Payable 340,000

Inventories 305,000 Contingent Consideration 60,000

Buildings-net (10-year life) 800,000 Additional paid-in capital 589,000

In-process research and development 60,000 Retained Earnings 80,000

Goodwill 100,000 Total Liabilities & Equity 2,519,000

Total Assets 2,519,000

Buildings-net (10-year life) 60,000

To adjust the fair value at acquisition

Dep. Exp. - Building (((400-40)/10)*1/12) 3,000

Acc. Dep. - Building 3,000

To record depreciation expense of the

Dep. Exp. - Building ((460-40)/10) 42,000

Acc. Dep. - Building 42,000

To record depreciation expense of the

Contingent Consideration 10,000

Contingent Consideration 15,000

Gain on Contingent Consideration 15,000

To record the probability value of the

Loss on Contingent Consideration 30,000

Contingent Consideration 30,000

Contingent Consideration (120,00030%0.9524) 34,286.4