Jun Zen Ralph Yap BSA – 3rd Year

Let’s Check

Activity 1. World Company acquired the net assets of Earth Company on January 2, 2020, for P565,000
cash. In addition, P5,000 of professional fees were incurred in consummating the combination. At the
time of acquisition, Earth reported the following book value and current market data:

Required:

1. Give the journal entry or entries by World Company to record the acquisition of the net assets of
Earth Company.

A
. Cash and Receivables 50,000

Inventory 150,000

Building and Equipment 300,000

Paten
t 200,000

Accounts Payable 30,000

Cash 565,000

Gain on acquisition 105,000

To record the acquired assets and assumed liabilities by

World Company from Earth Company
 Cash consideration transferred 565,000
Less: Fair Value of Net Assets
Cash and Receivables
50,000
Inventory
150,000
Building and Equipment
300,000
Patent
200,000
Less: Accounts Payable
30,000 670,000

Gain on Acquisition (Bargain Purchase) (105,000)

B
. Acquisition Expense 5,000

Cash 5,000
To record the professional fees incurred during the combination

2. Give the journal entry or entries by Earth Company in relation to the acquisition.

A
. Cash 565,000

Accounts Payable 30,000

Cash and Receivables 50,000

Inventory 100,000

Building and Equipment (net) 200,000

Patent (fully amortized) -

Gain on sale of business 245,000

To record the sale of net assets to World Company

Proceeds 565,000
Less: Carrying Amount of Net Assets

Cash and Receivables 50,000

 Inventory 100,000

Building and Equipment (net) 200,000

Patent (fully
amortized) -

Less: Accounts Payable 30,000 320,000

Gain on sale of business 245,000

B. Common Stock 100,000

Additional Paid-in Capital 80,000

Retained Earnings 140,000

Gain on sale of business 245,000

Cash 565,000
To record the cash distribution to Earth's shareholders

Activity 2. On January 1, 2020, Tagalog Company issued 6,000 shares of its P10 par value common stock
to acquire the assets and liabilities of Visaya Company. Tagalog Company shares were selling at P90 on
that date. Carrying value and fair value data for Visaya Company at the time of acquisition were as
follows:

Tagalog Corporation paid P25,000 for SEC registration and issuance of its new shares and paid
professional fees of P15,000

Required: Record the journal entries for the acquisition in the books of Tagalog Company.

A
. Cash and Receivables 50,000
Inventory
 200,000

Buildings and Equipment 300,000

Goodwill 40,000
Accounts
Payable 50,000

Common Stock 60,000

Additional Paid-in Capital - CS 480,000

To record the acquired assets and assumed liabilities by Tagalog
Company by issuing of its own shares

Shares Consideration Issued 540,000

Less: Fair Value of Net Assets
Cash and
Receivables 50,000

Inventory 200,000

Buildings and Equipment 300,000

Less: Accounts
Payable 50,000 500,000

Goodwill 40,000

B. Share Issuance Costs 25,000

Acquisition Expense 15,000

Cash 40,000
To record the share issuance costs and acquisition related costs