ACCOUNTING 315 – QUIZ BUSINESS COMBINATION

NAME : LEYROS, FE C. CLASS TIME: 3:00-4:30 PM DATE: 10/01/2020

Instructions: Solve the following problems. Show supporting computation with proper label.

Problem A
A merger was effected on June 1 whereby the Corona Corporation took over the assets and
assumed the liabilities of the Dino Company in exchange for 8,000 shares of its own stock. A
Statement of Financial Position for the Corona Corporation just prior to the merger shows the
following:

Cash, receivables, Current liabilities 105,000

inventories 365,000 Long-term debt 180,000
Investments 120,000 Preference shares, P100 par 100,000
Plant & equipment 400,000 Ordinary shares, P5 par 250,000
Goodwill & other Paid-in capital in excess of par 90,000
intangibles 100,000 Retained earnings 260,000
Total assets 985,000 Total liabilities & SHE 985,000
====== ======

The Dino Company’s Statement of Financial Position consists of the following:

Cash, receivable, Current liabilities 40,000

Inventories 80,800 Long-term debt 60,000
Plant and equipment (net) 140,000 Ordinary shares, P5 par 100,000
Goodwill 40,000 Paid-in capital in excess of par 30,000
Appraisal capital 50,000
Deficit (19,200)

Total assets 260,800 Total Liabilities & SHE 260,800

====== ======

The Corona Corporation records the assets of the Dino Company at appraised values as follows:
cash, receivables, and inventories, P56,000; plant and equipment, P120,000. Liabilities are
understated by certain accrued items totaling P1,200. The stock of the Corona Corporation is
selling at P12 per share, and this figure is used in recording the purchase of the Company’s net
assets.

Required:
1. Give the entries that would appear on the books of the Corona Corporation as a result of
the merger. (5 pts.)

Cash, receivable, Inventories 56, 000

 Plant and equipment (net) 120,000
Goodwill 21, 000
Current Liabilities 41,200
Long-term debt 60,000
Cash (8000 shares x 12) 96,000
#

2. Give the entries on the books of Dino Company. (5 pts.)

Investment in Corona Corporation (8000 shares x 12) 96,000

Current Liabilities 40,000
Long-term debt 60,000
Loss on sale of business 64,800
Cash, Receivable, Inventories 80,800

Plant and equipment (net) 140,000

Goodwill 40, 000
#

3. Compute the amount of the following on the books of Corona Corporation after the merger.
(3 pts. each)
a. Total assets P 1,182,200
b. Total liabilities P 386,200
c. Total shareholders’ equity P 796,000

Problem B
Stockholders of Companies D, E, and F agree to the following plan in effecting a consolidation:

The new Company, DEF, Inc., shall acquire all of the assets of Companies D, E, and F and shall
assume all of the liabilities, issuing 6% preference shares, P100 par value, in an amount equal to
the net assets transferred excluding intangible assets. Assets are to be valued at current market
or reproduction costs. Average profits for 2017, 2018, and 2019 in excess of 6% of net tangible
assets after revaluation are to be capitalized at 25% in determining the valuation to be placed on
goodwill; 150,000 shares of no-par ordinary are to be issued in payment of goodwill.

Balance sheets on March 31, 2020, when the consolidation is to be made effective, follow:

Company D Company E Company F

Cash 120,000 100,000 30,000
Receivables 280,000 160,000 220,000
Inventories 700,000 400,000 650,000
Plant and equipment (net) 2,200,000 1,000,000 1,500,000
Goodwill 200,000 100,000 ________
Total assets 3,500,000 1,760,000 2,400,000
======== ======== ========
Accounts payable 350,000 310,000 300,000
Long-term note payable 1,500,000 500,000
Ordinary shares, P100 par 1,000,000 500,000 2,000,000
Retained earnings (Deficit) 650,000 950,000 (400,000)
Total liabilities & SHE 3,500,000 1,760,000 2,400,000
======== ======== ========

Current market values:

Inventories 950,000 500,000 800,000

Plant and equipment (net) 3,000,000 1,300,000 1,750,000

Average earnings for the three-year period ended Dec. 31, 2019, were as follows: Company D,
P160,000; Company E, P120,000; and Company F, P125,000.

Required:

1. Prepare the entries on the books of DEF to record the consolidation. (5 pts.)
2. Calculate the number of shares to be issued by DEF. (3 pts. each)
a. Preference shares __________________
b. Ordinary shares __________________

3. Calculate the total assets of the new company after the consolidation. ________________ ( 3
pts.)

4. Calculate the total shareholders’ equity of the new company. __________________ (3 pts.)

Problem C
Shareholders of Algo Company, Bay Company, and Cosio Company agree to a merger. Bay
Company and Cosio Company are to accept shares of Algo Company in exchange for all of their
assets and liabilities on the basis of 1 share for every P125 of net assets transferred. On Dec. 31,
2019, the date of the transfer, balances on the books of the separate companies are as follows:

Algo Co. Bay Co. Cosio Co.

Assets:
Current assets 230,000 200,000 230,000
Plant and equipment (net) 450,000 250,000 370,000
Goodwill 20,000 50,000
Total assets 700,000 450,000 650,000
====== ====== ======
Liabilities & Stockholders’ Equity:
Current liabilities 175,000 120,000 190,000
Bonds payable 100,000 200,000
Ordinary shares, P100 500,000 150,000 200,000
Additional paid-in capital 45,000 90,000
Retained earnings (deficit) (20,000) (10,000) 60,000
Total liabilities & SHE 700,000 450,000 650,000
====== ====== ======
The following adjustments are to be made in arriving at the net asset contributions of Bay
Company and Cosio Company for purposes of the merger:

a. The inventory of the Bay Company is presently stated on a LIFO basis at P100,000; the
inventory is to be recognized at P160,000, representing cost calculated on a FIFO basis
consistent with the costing procedures of the other companies.
b. All other assets and liabilities are already stated at their fair values.

Required:

1. Prepare the entries on the books of Algo Co. (5 pts.)

Current asset 490,000

Property and Equipment 620,000
Current Liability 310,000
Bonds Payable 300,000
Ordinary Shares 500,000

2. Prepare the entries on the books of Bay Co. and Cosio Co. (10 pts.)

Bay Co

Investment on Alco Co. 290,000

Current Liability 120,000
Bonds Payable 100,000
Current Assets 200,000
Plant and Equipment (net) 250,000
Ordinary Shares 60,000
#

Cosio Co

Investment on Algo Cop. 210,000

Current Liabilities 190,000
Bonds Payable 200,000
Ordinary Shares 200,000
Current Assets 230,000
Plant and Equipment 370,000
Goodwill 50,000
#
3. Calculate the amount of the following on the books of Algo Co. after the merger. (3 pts.
each)

a. Increase in total assets P 1,110,000

b. Increase in total liabilities P 610,000
c. Increase in total shareholders’ equity P 1 025,000