Chapter 14

Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900

Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks

APIC 500
Cash 500

2.(in millions)
Cash 90
Receivables 190
 Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900
Gain on acquisition 3,880

Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Noncompetition agreement 10,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 25,880,000
Negative excess: Gain on Acquisition ( 3,880,000)

Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100

Costs to Issue and Register Stocks

APIC/Share Issue Costs 500
Cash 500

3.
Post-Combination Balance Sheet: (requirement 1)
Assets Liabilities and Stockholders’ Equity
Cash P 5,490,000
Current liabilities P 900,000
Receivables 2,190,000
Long-term liabilities 117,000,000
Inventories 27,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000
Common stock 2,100,000
Brand names 5,000,000
Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 23,900,000
Goodwill __6,120,,000
Treasury stock ( 1,000,000)
Total P201,300,000
Total P 201,300,000

*25,000,000 – 1,100,000, merger expenses = 23,900,000.

Post-Combination Balance Sheet: (requirement 2)

Assets Liabilities and Stockholders’ Equity
Cash P 5,490,000
Current liabilities P 900,000
Receivables 2,190,000
Long-term liabilities 117,000,000
Inventories 27,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000
Common stock 2,100,000
Brand names 5,000,000
Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 27,780,000
Noncompetition agreement _10,000,,000
Treasury stock __( 1,000,000)
Total P205,180,000
Total P 205,180,000

*25,000,000 – 1,100,000 + 3,880,000 = 27,780,000

Problem II
1. (in millions)
Cash and receivables 200
Inventories 400
Property, plant & equipment 5,500
Customer contracts 25
In-process R&D 300
Goodwill 2,035
Current liabilities 400
Long-term debt 7,300
Warranty liability 10
Estimated liability for Contigent Cons. 50
Capital stock 700

Note: Read the topic “Items included in Goodwill” in Chapter 14 about “Skilled (assembled) workforce” (they
are not identifiable at the date of acquisition) and “Potential Contracts” (they are not qualified as assets at the
acquisition date).

Consideration transferred:
 Shares 700,000,000
Estimated liability for Contigent Cons. _50,000,000
Consideration transferred 750,000,000
Less: MV of Assets and Liabilities Acquired:
Cash and receivables 200,000,000
Inventories 400,000,000
Property, plant & equipment 5,500,000,000
Customer contracts 25,000,000
In-process R&D 300,000,000
Current liabilities ( 400,000,000)
Long-term debt (7,300,000,000)
Warranty liability ( 10,000,000) (1,285,000,000)
Positive excess: Goodwill 2,035,000,000

Acquisition expenses
Acquisition/merger expenses 150
Cash 150

Costs to Issue and Register Stocks

Share Issue Costs 100
Cash 100

2. (in millions)
Goodwill 1,500
Property, plant & equipment 1,500

Problem III
1.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 22,500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Common stock 4,000,000
Additional paid-in capital 36,000,000
Cash 1,100,000

Consideration transferred:
Shares (400,000 x P100) 40,000,000
Less: MV of Assets and Liabilities Acquired:
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 22,500,000
 Costs to Issue and Register Stocks
Share Issue Costs/APIC 1,100
Cash 1,100
2.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Common stock 1,000,000
Additional paid-in capital 9,000,000
Gain on acquisition 7,500,000

Consideration transferred:
Shares (100,000 x P100) 10,000,000
Less: MV of Assets and Liabilities Acquired:
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Negative excess: Gain on acquisition ( 7,500,000)

Costs to Issue and Register Stocks

Share Issue Costs/APIC 800
Cash 800

3.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Estimated liability for Contigent Cons. 8,000,000
Common stock 1,000,000
Additional paid-in capital 9,000,000

Consideration transferred:
Shares (100,000 x P100) 10,000,000
Estimated liability for Contigent Cons. _8,000,000
Consideration transferred 18,000,000
Less: MV of Assets and Liabilities Acquired:
 Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 500,000

Costs to Issue and Register Stocks

Share Issue Costs/APIC 800
Cash 800

4.
(a)
Estimated liability for Contigent
Cons. 3,000,000
Goodwill 500,000
Gain on acquisition 2,500,000

(b)
Estimated liability for Contigent
Cons. 3,000,000
Gain on reduction in
liability 3,000,000

Problem IV
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
Estimated Liability for Contingent Consideration 135,000

Consideration transferred (P720,000 + P135,000) P855,000

Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000

2. January 2, 20x6
Estimated Liability for Contingent Consideration 135,000
Cash 135,000

3. January 2, 20x6
Estimated Liability for Contingent Consideration 135,000
Gain on Contingent Consideration 135,000

Problem V
 Current Assets 362,000
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000 P5) 720,000
PIC - par (144,000 x P15 - P5)) 1,440,000

* (144,000 P15) – [P362,000 + P2,013,000 – (P119,000 + P491,000)] = P395,000

Total shares issued (P700,000 / P5) + P20,000 / P5) 144,000

Fair value of stock issued (144,000P15) = P2,160,000

Problem VI

Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000

Case B
Consideration transferred P110,000
Less: Fair Value of Net Assets 90,000
Goodwill P 20,000

Case C
Consideration transferred P15,000
Less: Fair Value of Net Assets 20,000
Gain (P 5,000)

Assets Liabilities Retained Earnings

Goodwill Current Assets Long-Lived Assets (Gain)
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000

Problem VII
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 = P187,080
Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 = 344,098
Total Present value P531,178
Par value 600,000
Discount on bonds payable P 68,822

Cash 114,000
Accounts Receivable 135,000
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount (P40,000 + P68,822) 108,822
Current Liabilities 95,300
Bonds Payable (P300,000 + P600,000) 900,000
Gain on Acquisition of Stalton (ordinary) 81,872
Computation of Excess of Net Assets Received Over Cost
Consideration transferred (P531,178 plus liabilities assumed of P95,300
andP260,000) P886,478
Less: Total fair value of assets received _968,350
Excess of fair value of net assets over cost (P 81,872)

Problem VIII
Acquisition Method—Entry to record acquisition of Sampras
Consideration transferred P300,000
Estimated Liability for contingent Consideration 15,000
Consideration transferred (fair value) 315,000
Fair value of net identifiable assets 282,000
Goodwill P33,000

Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
IPRD 30,000
Goodwill 33,000
Current liabilities 10,000
Long-term liabilities 50,000
Estimated liability for contingent consideration 15,000
Cash 300,000

Acquisition related-expenses 10,000

Cash 10,000

Problem IX
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess – Goodwill P 102,000

b. The journal entries by Peter Corporation to record the acquisition is as follows:

Cash 24,000
 Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 36,000
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.

Acquisition-related expenses 78,000

Cash 78,000
Acquisition related costs – direct costs.

Paid-in capital in excess of par 32,400

Cash 32,400
Acquisition related costs – costs to issue and register
stocks.

Acquisition-related expenses 27,600

Cash 27,600
Acquisition related costs – indirect costs.

c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:

Pure Corporation
Balance Sheet
December 31, 20x4

Assets
Cash P 162,000
Receivables – net 144,000
Inventories 360,000
Land 348,000
Buildings – net 840,000
Equipment – net 732,000
In-process research and development 60,000
Goodwill 102,000
Total Assets P2,748,000

Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 288,000
Other liabilities 408,000
Notes payable 180,000
Estimated liability for contingent consideration 36,000
 Total Liabilities P 912,000
Stockholders’ Equity
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1
P240,000 + P446,400 – P32,400
2
P264,000 - P78,000 – P27,600

It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.

2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively adjusted in value
during the measurement period for new information that clarifies the acquisition-date value. The adjustments
affect goodwill since the measurement period is still within one year (i.e., eight months) from the acquisition
date. Therefore, the goodwill to be reported then on the acquisition should be P78,000 (P102,000 – P24,000).

b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.

3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 + P24,000).

b. The adjustment is still within the measurement period, the entry to adjust the liability would be:
Goodwill 24,000
Estimated liability for contingent consideration 24,000
Adjustment to goodwill due to measurement date.

c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once (last August 31,
20x5).

c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to P48,000, the entry
to adjust the liability would be:

Estimated liability for contingent consideration 12,000

Gain on estimated contingent consideration 12,000
Adjustment after measurement date.

In this case, the measurement period ends at the earlier of:

 one year from the acquisition date, or
 the date when the acquirer receives needed information about facts and circumstances (or learns
that the information is unobtainable) to consummate the acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done only once (last
August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent consideration 30,000
Estimated liability for contingent consideration 30,000
Adjustment after measurement date.
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is P260,000, which means that the
target is met, Peter Corporation will make the following entry:
Estimated liability for contingent consideration 78,000
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 106,386
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 40,385
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence would be:
Estimated liability for contingent consideration 40,385
Gain on estimated contingent consideration 40,385
Adjustment after measurement date.

Since the contingent event does not happen, the position taken by PFRS 3 is that the conditions that
prevent the target from being met occurred in a subsequent period and that Peter had the information to
measure the liability at the acquisition date based on circumstances that existed at that time. Thus the
adjustment will flow through income statement in the subsequent period.

d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent consideration would be:
Estimated liability for contingent consideration 36,000
Loss on estimated contingent consideration 66,000
Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
Settlement of contingent consideration.

5.
a. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Positive Excess – Goodwill P 120,000

b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 120,000
Accounts payable 72,000
Other liabilities 168,000
Notes payable 180,000
Estimated Liability for Contingent Consideration 36,000
Paid-in capital for Contingent Consideration 18,000
Common stock (P10 par x 30,000 shares) 300,000
Additional paid-in capital [(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.

c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration 18,000
Common stock (P10 par x 1,200 shares) 12,000
Paid-in capital in excess of par 6,000
Settlement of contingent consideration.

6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event occurs). Thus, the entry
record the occurrence of such event to reassign the P750,000 original consideration to 36,000 shares (30,000
original shares issued + 6,000 additional shares due to contingency) would be:
Paid-in capital in excess of par 60,000
Common stock (P10 par x 6,000 shares) 60,000
Settlement of contingent consideration.

7. On January 1, 20x7, the contingent event happens since the fair value per share fall below P25. Thus, the entry
record the occurrence of such event to reassign the P750,000 original consideration to 37,500 shares (30,000
original shares issued + 7,500* additional shares due to contingency) would be:
Paid-in capital in excess of par 75,000
Common stock (P10 par x 7,500 shares) 75,000
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:
Consideration transferred;
 Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
Less: Fair value of identifiable assets acquired and
liabilities assumed (refer to 1a above) 864,000
Positive Excess – Goodwill P 158,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Goodwill 158,308
Accounts payable 62,000
Other liabilities 168,000
Notes payable 180,000
Paid-in capital for Contingent Consideration 92,308
Common stock (P10 par x 25,000 shares) 300,000
Paid-in capital in excess of par[(P25 – P10) x 30,000 shares] 450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to P20, thus requiring
Peter to issue additional shares of stock to the former owners of Saul Corporation. The entry for Peter
Corporation on December 31, 20x5 to record such occurrence such event to reassign the P750,000 original
consideration to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to contingency)
would be:

Paid-in capital for Contingent Consideration 92,308

Common stock, P10 par 75,000
Paid-in capital in excess of par 17,308
Settlement of contingent consideration.
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500

Problem X
1.
Consideration transferred:
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Accounts payable 45,100
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
 Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700

Homer Ltd
Accounts Receivable 34,700
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)

Payable to Tan Ltd 132,000

Cash 132,000
(Being payment of cash consideration)

Paid-in capital in excess of par 1,200

Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
P P
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Plant and Equipment 46,000
Goodwill 2,000
Interest Payable 4,000
Liquidation Expenses 2,400
Premium on Debentures 2,500
Accounts Payable 1,600
Shareholders’ Distribution 68,000
318,800 318,800

Liquidator’s Cash
P P
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
Accounts Payable 45,100
144,000 144,000

Shareholders’ Distribution
P P
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000

Problem XI
Cash 20,000
Accounts Receivable 112,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Accounts Payable 54,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

Consideration transferred P600,000

Less: Fair value of net assets acquired
(P784,000 – P10,000 – P54,000 – P180,000 - P67,200*) 472,800
Goodwill P127,200
* Increase in net assets
Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000) P148,000
Decrease bonds payable to fair value(20,000)
Increase in net assets P168,000
Establish deferred income tax liability(P168,000 x 40%)P67,200