Problem 1

Given are the balance sheets of P Company and S Company on December 1, 2018 prior to acquisition:

Book Values S Company

P Company S Company Fair Market Values
Cash P218,000 - -
Accounts Receivable 144,000 P40,000 P40,000
Inventory 160,000 100,000 110,000
Land 200,000 80,000 130,000
Building (net) 840,000 300,000 500,000
Equipment (net) 400,000 80,000 120,000
Totals P1,962,000 P600,000 P900,000

Accounts payable P160,000 P80,000 P80,000

Bonds payable 400,000 200,000 200,000
Common Stock-P(P10 400,000
par)
Common Stock-S(P1 20,000
par)
APIC-P Company 500,000
APIC-S Company 180,000
Retained Earnings- P 502,000
Company
Retained Earnings- S 120,000
Company
Totals P1,962,000 P600,000 P280,000

Case 1:

Assume that P Company issued 24,000 of its P10 par value common stock for 80% of the outstanding
shares of S Company. The fair value of P Company’s stock is P35 and the fair value of the 20% NCI is
assessed to be P180,000. P Company also pays P50,000 in professional fees to accomplish the
acquisition.

Case 2:

Assume that P Company issued 12,000 of its P10 par value common stock for 80% of the outstanding
shares of S Company. The fair value of P Company’s stock is P35. P Company also pays P50,000 in
professional fees to complete the combination.

Required: Compute for the Goodwill/Gain on Bargain Purchase, Consolidated Assets, Liabilities and
Shareholder’s equity for each case.
Problem 2

The January 1, 2018 balance sheet of S Company at book and market values are as follows:

Book value Fair value

Current assets P800,000 P750,000
Property and equipment (net) 900,000 1,000,000
Total assets P1,700,000 P1,750,000

Current liabilities P300,000 P300,000

Long-term liabilities 500,000 460,000
Common stock, P1 par 100,000
Additional paid-in capital 200,000
Retained Earnings 600,000
Totals P1,700,000

P Company paid P950,000 in cash for 80% of S Company’s common stock. P Company also pays P80,000
of professional fees to affect the combination. The fair value of the NCI is assessed to be P230,000.

Required:

a. Prepare journal entry on P Company’s books to record the acquisition of the S Company stock.
b. Prepare a determination and allocation excess schedule.
c. Prepare a goodwill allocation schedule.
d. Prepare the working paper elimination entries for the consolidation working paper.