PROBLEM 1

San Pedro Industries Inc., entered into a business combination agreement with Alay-ay Corporation. San Pedro
Under the terms of the agreement, San Pedro Industries Inc. issued 180,000 shares of its Cash 28,000
P1 par common stock in exchange for all the assets and liabilities of Alay-ay. Accounts receivable 251,500
San Pedro Industries Inc. shares then were distributed to the shareholders of Alay-ay, and Alay-ay was liquidated. Inventory 395,000
Long-term investments 175,000
Immediately prior to the combination, Alay-ay's statement of financial position appeared as follows: Land 100,000
Rolling stock 63,000
Book Fair Plant and equipment 2,500,000
values values Patents 500,000
Assets: Special licenses 100,000
Cash P 28,000 P 28,000 Goodwill 109,700
Accounts receivable 258,000 251,500 Current payables
Less: Allowance for bad debts - 6,500 - Mortgages payable
Inventory 381,000 395,000 Equipment trust notes
Long-term investments 150,000 175,000 Debentures payable
Land 55,000 100,000 Common stock (180,000 x P1)
Rolling stock 130,000 63,000 APIC (180,000 x P13)
Plant and equipment 2,425,000 2,500,000
Less Accumulated depreciation - 614,000 -
Patents 125,000 500,000 Acquisition related expenses 135,000
Special licenses 95,800 100,000 APIC 42,000
P 3,027,300 P 4,112,500 Cash

Liabilities: Alay-ay
Current payables P 137,200 P 137,200 Investment in San Pedro (180,000 x P14) 2,520,000
Mortgages payable 500,000 520,000 Current payables 137,200
Equipment trust notes 100,000 95,000 Mortgages payable 500,000
Debentures payable 1,000,000 950,000 Equipment trust notes 100,000
Less: Discount on debentures - 40,000 - Debentures payable 1,000,000
P 1,697,200 P 1,702,200 Allowance for bad debts 6,500
Accumulated depreciation 614,000
Stockholders' equity Discount on debentures
Common stock (P5 par) P 600,000 Cash
Additional paid-in capital - common stock 500,000 Accounts receivable
Additional paid-in capital - preferred stock 22,000 Inventory
Retained earnings 220,100 Long-term investments
Less: Treasury stock (1,500 shares) - 12,000 Land
 P 1,330,100 Rolling stock
Plant and equipment
Immediately prior to the combination, San Pedro Industries common stock was selling from P14 per share. Patents
San Pedro Industries Inc. incurred professional fee of P135,000 in arranging the business combination and Special licenses
P42,000 of stock issue costs. Gain on sale of business

Required: Common stock 600,000

(1) Prepare all the journal entries that San Pedro Industries Inc. should have entered on its books. Additional paid-in capital - common stock 500,000
(2) Prepare all journal entries that should have been entered on the books of Alay-ay to Additional paid-in capital - preferred stock 22,000
record the combination and the distribution of the stocks received. Retained earnings 220,100
Gain on sale of business 1,189,900
Treasury stock 1,189,900
Investment in San Pedro

PROBLEM 2
Puzon Company acquired the net assets of Tolentino Company on January 1, 2019, and made the
following entry to record the acquisition:

Current assets 200,000

Equipment 300,000
Land 100,000
Building 600,000
Goodwill 200,000
Liabilities 160,000
Common stock P1 par 200,000
APIC 1,040,000

Required: Prepare the required entry on January 1, 2021, for each of the following
independent contingency agreements: January 1, 2021
Loss on contingent consideration payable 40,000
1. An additional cash payments would be made on January 1, 2021, equal to twice amount by Liabilities 80,000
which the average earnings of Tolentino Company exceed P50,000 per year, prior to Janyary 1, 2021. Cash
Net income was P100,000 in 2019 and P120,000 in 2020. Assume that the liabilities recorded (100,000+120,000)/2 = 110,000; (110,000 - 50,000) = 60,000
on January 1, 2019, include an estimated contingent liability at an estimated amount of P80,000. 60,000 x 2 = P120,000

2. Added shares would be issued on January 1, 2021, equal in value to twice the amount by which average annual January 1, 2021
earnings of Tolentino company exceed P50,000 per year, prior to January 1, 2021. Net income was P100,000 in APIC 12,000
2019 and P120,000 in 2020. The market price of the shares on January 1, 2021 was P10. Commons stock (12,000 x P1)
 (60,000/P10) x 2 = 12,000 shares

3. Added shares would be issued on January 1, 2021, to compensate for any fall in the value of Puzon Company's January 1, 2021
common stock below P12 per share. The settlement would be to cure the deficiency by issuing added shares based APIC 100,000
on their fair value on January 1, 2021. The market price of the shares on January 1, 2021 was P8. Commons stock (100,000 shares x P1)
(P12 - P8) x 200,000 shares = P800,000; P800,000/P8 = 100,000 shares

PROBLEM 3
On July 1, 2019, Palaganas Company acquired all of the assets and liabiliies of the Videna Company by issuing
25,000 common shares. At the date of acquisition, Palaganas Company stock was selling for P96 per share; the
net book value of Videna Company on that date was P2,200,000. All the excess of the purchase price over Videna
Company net book value was attributable to goodwill. The following annual results of operations were reported by
Palaganas Company and Videna Company prior to the combination and by the combined company subsequent
to the combination:
2018 2019 2020
Revenue:
Palaganas Company P 1,400,000 P 2,000,000 P 2,100,000
Videna Company 350,000
Net income:
Palaganas Company 500,000 620,000 700,000
Videna Company 100,000
2018 2019 2020
The results of operations reflected the amounts actually reported for each year; the amounts reported for periods Revenues 1,400,000 1,800,000 2,100,000
subsequent to the combination were based on the combination's having been treated as purchase.

The revenues and income for both companies have been earned evenly throughout the individual years. For the Net income 500,000 565,000 700,000
1st half of 2019, Palaganas Company earned net income of P255,000 on revenue of P800,000. Videna Company
earned P55,000 on revenue of P200,000. There were no intercompany transactions between two companies at
anytime. Palaganas Company had 100,000 shares of common stock outstanding prior to the combination. EPS P5/share P4.52/share P5.6/share
100k shrs 125k shrs 125k shrs
Required: Present the amounts that would appear for 2018, 2019 and 2020 in Palaganas Company's comparative
statement of comprehensive income prepared at the end of its fiscal year on December 31, 2020, for :
(1) revenues, (2) net income, and (3) earnings per share.

PROBLEM 4
Borcelis Company acquired the net assets of Roxas Company on January 1, 2019 for P500,000 cash. The fair value
of the net assets acquired was P400,000. Goodwill:
Price paid 500,000
Required: FVNA - 400,000
(1) What amount of goodwill was recorded by Borcelis Company? 100,000
(2) Using the information above, answer the following independent questions: Rule:
(a) On December 31, 2020, there were indications that goodwill might have been impaired. At that time, RA > CA (including goodwill), no impairment
the carrying value of Borcelis Company's net assets, including goodwill, was P500,000 and recoverable
amount of the unit is P520,000. Is goodwill impaired? If so, what adjustment is needed?
Impairment
(b) On December 31, 2020, there were indications that goodwill might have been impaired. At that time, RA: 400,000 - CA: (340,000+100,000) = (40,000)
the carrying value of Borcelis Company's net assets, excluding goodwill, was P340,000 and recoverable
amount of the unit is P400,000. Is good impaired? If so, what adjustment is needed? Entry:
Impairment loss 40,000
Goodwill 40,000

PROBLEM 5
Vicente Corporation is contemplating the acquisition of the net assets of Fabrolina Company on December 31,
2019. It is considering making an offer, which would include a cash payout of P400,000 along with giving 15,000
shares of its P4 par value common stock that is currently selling for P40 per share. Vicente Corporation also
agrees that it will pay an additional P100,000 on January 1, 2022, if the average net income of Fabrolina's
business unit exceeds P160,000 for 2020 and 2021. The likelihood of reaching that target is estimated to be 75%.
The statement of financial position shows the fair value of the assets amounting to P916,000 and liabilities Entry:
amounting to P602,000. Assets 916,000
Goodwill 761,000
Requirement: Liabilities
(1) Prepare the entry on the books of Vicente Corporation to record the acquisition of Fabrolina Company Cash
Common stock (15,000 x P4)
APIC (15,000 x P36)
Estimated liab for contingency (P100,000 x 75%)

(2) Assume the net income of Faborilina Company is P240,000 for 2020. As a result, the likelihood Entry:
of paying the contingent consideration is believed to be 90%. What adjusting entry should is required as of
December 31, 2020? Goodwill 15,000
Estimated liab for contingency
(P100,000 x 90%) - 75,000 = P15,000

PROBLEM 6
On August 1,2019, Vivar Company acquired the net assets of Caneo Company for a price of P32M. A the
acquisition date the carrying value of Caneo asset was P20M. At the acquisition date, a provisional fair Goodwill:
value of the net assets was P24M. An additional valuation received on June 30, 2020 increased the 32M - 28M = 4M
provisional value to 27M and on August 1, 2020 this fair value was finalized at 28M.
What amount should Vivar Company present as goodwill on December 31, 2020?
 137,200
520,000
95,000
950,000
180,000
2,340,000

177,000

40,000
28,000
258,000
381,000
150,000
55,000
 130,000
2,425,000
125,000
95,800
1,189,900

12,000
2,520,000

120,000

12,000
 100,000
= 100,000 shares
602,000
400,000
60,000
540,000
75,000

15,000