Items 1-6 are based on the following information:

Sandy Corporation's balance sheet at January 2, 20x8 is as follows:

Dr(Cr)
Cash and receivables P 200.000
Inventories 600,000
Property, plant and equipment, net 7.500,000
Current liabilities (400,000)
Long-term debt （7,200,000)
Capital stock (7,200)
Retained earnings... (25,000)
Accumulated other comprehensive income (5,000)

An analysis of Sandy's assets and liabilities reveals that book values of some
reported items do not reflect their market values at the date of acquisition:
 Inventories are overvalued by P450,000.
 Property. Plant and equipment are undervalued by P 200,000.
 Long-term debt is undervalued by P80,000.
In addition, the following items are not currently reported on Sandy's balance
sheet:
 Customer contracts, valued of P25,000.
 Skilled work force, valued at P45,000.
 In process research and development, valued at P300,000.
 Potential contracts with prospective customers, valued at P15,000.
 Sandy has not recorded expected future warranty liabilities with a present value of P10,000.
Here is the pre-acquisition balance sheet of Velasco December 31, 20x7.

Assets Book Value

Cash…………………………...................... P 25,000,000
Receivables…………………………………. 2,000,000
Inventories…………………………………… 20,000,000
Plant & equipment, net…………………... 99,500,000
Trademarks………………………………….. 5,000,000
Goodwill……………………………………... ____________
Total Assets……………………………………. P151,500,000

Liabilities &Equity Book Value

Current liabilities……………………………. P 500,000

Long-term liabilities………………………… 70,000,000
Ordinary share/Common stock, par…… 2,000,000
Share premium/APIC……………………… 55,000,000
Accumulated P&L/Retained earnings… 25,000,000
Treasury shares……………………………… (1,000,000)
 Total Liabilities &Equity………………………. P151,500,000
3

On January 2,20x8, Velasco issues new stock with a market value of P3,000,000
to acquire the assets and liabilities of Sandy. Stock registration fees are P120,000
paid in cash. Consulting, accounting and legal fees connected with the merger
are P155,000, paid in cash. In addition, Velasco enters into earnings
contingency agreement, whereby Velasco will pay the former shareholders of
Sandy an additional amount if Sandy's performance meets certain minimum
levels. The present value of the contingency is estimated at P50,000.
1. Consideration transferred amounted to:
2. The market value of assets and liabilities / net assets acquired amounted
3. The amount of goodwill in the books of the acquirer amounted to:
4. The amount of goodwill in the balance sheet amounted to:
5. Total liabilities after combination amounted to:
6. Total stockholders/shareholders' equity after combination amounted to:
7-10 Prepare journal entry to record the acquisition

Assume the same information as above but, Sandy has an additional previously unreported intangible
that meets the requirements for capitalization: A non-competition agreement with a fair value of
P6,000,000. All the fair value calculations have been doubled checked for accuracy and found to be
correct.

11-13 Prepare the journal entries to record the acquisitions on Velasco’s book
14-16 Prepare Velasco’s balance sheet on the date of combination.
17. The total amount of assets is ? ____________
18. The total amount of liabilities is ? ___________
19. The total APIC is? ______________
20. The total Retained earnings is? _______________
21. The total Share holders’ equity is? _______________

On December 31, 20x4, Pure Corporation enters into a business combination by acquiring the assets and
assumed the liabilities of Saint Corporation in which Saint Corporation will be dissolved. Pure
consideration transferred consists of the following:
a. 30,000 unissued shares of its P10 par common stock, with a market value of P25 per share.;
b. P180,000 in long-term 8% notes payable, and
c. A contingent payment of P120,000 cash on January 1, 20x7, if the average income of during the 2-
year period of 20x5 – 20x6 exceeds P300,000 per year. Pure estimates that there is a 30 percent
chance or probability that the P120,000 payment will be required.
In addition, Pure pays the following at the time of the merger:

 Finders’ fee P12,000

 Accounting fees, P24,000
 Legal fees to arrange the business combination P42,000
 Cost of SEC registration, including accounting and legal fees P18,000
 Cost of printing and issuing stock certificates P14,400
 Indirect costs of combining, including allocated overhead and executive salaries P27,600
Balance sheet and fair value information for the two companies on December 31, 20x4, immediately
before the merger, is as follows:

Pure Saint
Book Value Fair Value Book Value Fair Value
Cash . . . . . . . . . . . . . . . . . . . . P 276,000 P 276,000 P 24,000 P 26,000
Receivables – net . . . . . . . . . . 96,000 96,000 48,000 50,000
Inventories . . . . . . . . . . . . . . . . 288,000 360,000 120,000 75,000
Land . . . . . . . . . . . . . . . . . . . . 108,000 240,000 72,000 245,000
Buildings – net (10-year life). . . . 480,000 720,000 240,000 380,000
Equipment – net (5-year life) . . . . 432,000 588,000 216,000 310,000
In-process research and
Development . . . . . . . . . . . . . . _________0 _________ _________0 60,000
0
Total Assets . . . . . . . . . . . . . . P1,680,000 P2,280,000 P 720,000 P 1,104,000

Accounts payable . . . . . . . . . . P 216,000 P216,000 P 72,000 P 72,000

Other liabilities . . . . . . . . . . . . . . 240,000 216,000 144,000 168,000
Common stock, P10 par . . . . . . 720,000 240,000
Additional paid-in capital . . . . . . 240,000 192,000
Retained earnings . . . . . . . . . . 264,000 72,000
Total Liabilities and Equities . . P1,680,000 P 720,000

Required: On December 31, 20x4:

22. Determine the amount of goodwill
23. Prepare the entries required in the books of the acquirer (Pure) in relation to the acquisition of
Saint Corporation.

Assume that the value of the buildings was provisionally determined on December 31, 20x4.
On August 1, 20x5, Pure Corporation received the final value from the independent
appraisal, the fair value at acquisition date being P394,000.
24. Determine the amount of goodwill.
25. Prepare the required entry to reflect the adjustment, if any.
 Assume that on August 31, 20x5 because of improved information about facts and
circumstances that existed at the acquisition date, the contingent consideration was revised to an
expected value of P70,000.

26. Determine the amount of goodwill.

27. Prepare the required entry to reflect the adjustment, if any.

Assume that on November 1, 20x5, the probability value of the contingent consideration
amounted to P P48,000:
28. Determine the amount of goodwill.
29. Prepare the required entry to reflect the adjustment, if any.
Assume on December 15, 20x5, due to subsequent change not existing on the acquisition
date the expected value of the contingent consideration amounted was revised to
P78,000:
30. Determine the amount of goodwill
31. Prepare the required entry to reflect the adjustment, if any.
Assume that on January 1, 20x7, Saint’s average income in 20x5 is P324,000 and 20x6 is
P312,000, which means that the target is met:
32. Determine the amount of goodwill
33. Prepare the required entry for settlement, if any.