Cabigon, Gianrie Gwyneth A.

BS-Accountancy
QUIZ 15 – Business Combination

Use the following information for question 1 and 2:

Southern acquired 100 percent of Fast Transit for P275,000. At the date of acquisition, Fast
Transit had the following book and market values:
Book Value Market Value
Cash and Receivables P30,000 P30,000
Inventory 100,000 120,000
Plant Assets (net) 210,000 300,000
Current Liabilities (45,000) (45,000)
Long-term Debt (115,000) (115,000)
Common Stock (10,000)
Retained Earnings (170,000)
1. What is the amount of the “Investment in Fast Transit” account on Southern’s financial
records at the acquisition date?
Answer:
Cash & Receivables P 30,000
Inventory 120,000
Plant Asset(net) 300,000
Current Liabilities (45,000)
Long-Term Debt (115,000)
Investment in Fast Transit 290,000

2. What amount of pre-acquisition earnings is eliminated in the acquisition date worksheet

elimination?
Answer: None- There are no revenues and expenses of the acquire up to the date of
acquisition.
3. Georgia Corporation purchases all of Gator Company’s stock on June 1 for P1,200,000.
At that date, Gator had the following book and market values:
Book Value Market Value
Cash and Receivables P80,000 P80,000
Inventory 230,000 270,000
Plant Assets (net) 900,000 1,230,000
Cost of Goods Sold 750,000
Operating Expenses 170,000
Dividends 20,000
Liabilities 600,000 600,000
Common Stock 25,000
Retained Earnings 525,000
Sales 1,000,000

What amount of retained earnings is eliminated in the acquisition date worksheet

elimination? Answer: P 575,000
4. Calendar Company purchases 80 percent of Daily Planner. At the date of acquisition,
Daily Planner has revenue of P250,000 and expenses of P170,000. What amount of pre-
acquisition earnings will be created on the consolidated income statement at the
acquisition date?
Answer: Revenue – P 250,000
Expenses- P 170,000
Pre-Acquisition Earnings P 80,000

5. Mobile Corporation acquires 70 percent of Telephone Company’s stock. What amount of

non-controlling interest is recognized on the acquisition date balance sheet if Telephone
has the following account balances?

Book Value Market Value

Cash P10,000 P10,000
Inventory 80,000 80,000
Plant Assets (net) 350,000 350,000
Cost of Goods Sold 130,000
Depreciation Expense 20,000
Liabilities (110,000) (110,000)
Common Stock (30,000)
Retained Earnings (260,000)
Sales (190,000)

Answer: Cash P 10,000

Inventory 80,000
Plant Assets(net) 350,000
Liabilities (110,000)
330,000
x .30
Non-controlling interest 99,000

6. What is the amount of pre-acquisition earnings on the acquisition date consolidated

income statement if the parent acquires 90 percent of the subsidiary’s stock and the
following income statement accounts exist at the acquisition date?
Parent Subsidiary
Sales P250,000 P60,000
Cost of Goods Sold 120,000 12,000
Depreciation Expense 10,000 5,000
Operating Expenses 40,000 8,000
Income Tax Expense 32,000 14,000

Answer: Sales P 60,000

Cost of Goods Sold (12,000)
Depreciation Expense (5,000)
Operating Expenses (8,000)
Income Tax Expense (14,000)
 Pre-Acquisition Earnings P 21,000
7. Using the same information in No. 6, what is the imputed value of a subsidiary if the
parent pays P56,000 for 80 percent of the subsidiary’s stock?
Answer: 56,000 / .8 = P 70,000
Use the following information for question 8 and 11:
Jasper Enterprises acquires 70 percent of Felix Corporation on May 1 for P490,000. At the
acquisition date, Felix has the following book and market values.
Book Value Market Value
Cash P30,000 P30,000
Inventory 80,000 140,000
Plant Assets (net) 370,000 460,000
Cost of Goods Sold 120,000
Depreciation Expense 44,000
Liabilities (100,000) (110,000)
Common Stock (10,000)
Retained Earnings (300,000)
Sales (220,000)

8. What is the amount of pre-acquisition earnings recognized on the acquisition date

consolidated income statement?
Answer: Sales P 220,000
Cost of Goods Sold 120,000
Depreciation Expense 44,000
Pre- Acquisition Earnings 56,000

9. What is the imputed market value of Felix?

Answer: Acquisition Cost 490,000
Divided By: .70
Imputed Market Value 70,000

10. What is the goodwill recognized on the acquisition date balance sheet? Answer:
Acquisition Cost P 490,000
Divided by .70
Total 700,000
Less MV of Asset
Cash 30,000
Inventory 140,000
Plant Asset (net) 460,000
Liabilities (110,000) 520,000
Goodwill 180,000
11. What amount of purchase differential is recognized on the acquisition date balance sheet
with respect to plant assets?
Answer: P460,000 - P370,000 = P 90,000
12. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000.
At the acquisition date, Riddle has the following book and market values.
Book Value Market Value
Cash P50,000 P50,000
Inventory 140,000 200,000
Plant Assets (net) 530,000 600,000
Cost of Goods Sold 210,000
Depreciation Expense 60,000
Liabilities (230,000) (230,000)
Common Stock (10,000)
Retained Earnings (350,000)
Sales (430,000)

What is the amount of pre-acquisition earnings recognized on the acquisition date

consolidated income statement?
Answer: Sales 430,000
Cost of Goods Sold (210,000)
Depreciation Expense (60,000)
Pre-Acquisition Cost 160,000

13. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000.
At the acquisition date, Riddle has the following book and market values.

Book Value Market Value

Cash P50,000 P50,000
Inventory 140,000 200,000
Plant Assets (net) 530,000 600,000
Cost of Goods Sold 210,000
Depreciation Expense 60,000
Liabilities (230,000) (230,000)
Common Stock (10,000)
Retained Earnings (350,000)
Sales (430,000)

What is the imputed market value of Riddle?

Answer: Acquisition Cost 560,000
Divided By .80
Imputed Market Value 700,000
14. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000.
At the acquisition date, Riddle has the following book and market values.
Book Value Market Value
Cash P50,000 P50,000
Inventory 140,000 200,000
Plant Assets (net) 530,000 600,000
Cost of Goods Sold 210,000
Depreciation Expense 60,000
Liabilities (230,000) (230,000)
Common Stock (10,000)
Retained Earnings (350,000)
Sales (430,000)

What is the goodwill recognized on the acquisition date balance sheet?

Answer: Acquisition Cost 560,000
Divided by .80
Total 700,000
Less: MV of Net Assets
Cash 50,000
Inventory 200,000
Plant Asset(net) 600,000
Liabilities (230,000) 620,000
Goodwill 80,000

15. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000.
At the acquisition date, Riddle has the following book and market values.
Book Value Market Value
Cash P50,000 P50,000
Inventory 140,000 200,000
Plant Assets (net) 530,000 600,000
Cost of Goods Sold 210,000
Depreciation Expense 60,000
Liabilities (230,000) (230,000)
Common Stock (10,000)
Retained Earnings (350,000)
Sales (430,000)

What amount of purchase differential is recognized on the acquisition date balance sheet
with respect to plant assets?
Answer: Plant Asset- net (MV) 600,000
Plant Asset- net (BV) (530,000)
Total Plant Asset 70,000
16. Lazer Corporation acquired 80 percent of High-Energy Company on August 1 for
P500,000. On that date High-Energy had the following book values and market values.
Book Value Market Value
Cash P60,000 P60,000
Inventory 130,000 210,000
Plant Assets (net) 580,000 630,000
Cost of Goods Sold 200,000
Depreciation Expense 40,000
Liabilities (250,000) (250,000)
Common Stock (10,000)
Retained Earnings (450,000)
Sales (300,000)
What is the amount of non-controlling interest on the acquisition date consolidated
balance sheet?
Market Value Percentage Total
Answer: Cash 60,000 .20 12,000
Inventory 210,000 .20 42,000
Plant Asset (net) 630,000 .20 126,000
Liabilities 250,000 .20 (50,000)
Non-Controlling Interest 130,000

17. Lazer Corporation acquired 80 percent of High-Energy Company on August 1 for

P500,000. On that date High-Energy had the following book values and market values.
Book Value Market Value
Cash P60,000 P60,000
Inventory 130,000 210,000
Plant Assets (net) 580,000 630,000
Cost of Goods Sold 200,000
Depreciation Expense 40,000
Liabilities (250,000) (250,000)
Common Stock (10,000)
Retained Earnings (450,000)
Sales (300,000)
What is the amount of purchase differential recognized on the acquisition date
consolidated balance sheet with respect to plant assets?
Answer: Plant Asset- net (MV) 630,000
Plant Asset- net (BV) 580,000
Increase in Plant Asset - 50,000
18. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000.
On that date Razor had the following book values and market values.
Book Value Market Value
Cash P40,000 P40,000
Inventory 170,000 230,000
Plant Assets (net) 620,000 700,000
Cost of Goods Sold 220,000
Depreciation Expense 60,000
Liabilities (300,000) (300,000)
Common Stock (10,000)
Retained Earnings (450,000)
Sales (350,000)
What is the amount of the “Investment in Blade” account in the books of the acquirer at
the acquisition date?
Market Value Percentage Total
Answer: Cash 40,000 .70 28,000
Inventory 230,000 .70 161,000
Plant Asset (net) 700,000 .70 490,000
Liabilities (300,000) .70 (210,000)
Investment in Blade 469,000

19. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000.
On that date Razor had the following book values and market values.
Book Value Market Value
Cash P40,000 P40,000
Inventory 170,000 230,000
Plant Assets (net) 620,000 700,000
Cost of Goods Sold 220,000
Depreciation Expense 60,000
Liabilities (300,000) (300,000)
Common Stock (10,000)
Retained Earnings (450,000)
Sales (350,000)
What is the amount of non-controlling interest on the acquisition date consolidated
balance sheet?
Market Value Percentage Total
Answer: Cash 40,000 .30 12,000
Inventory 230,000 .30 69,000
Plant Asset (net) 700,000 .30 210,000
Liabilities (300,000) .30 (90,000)
Non-Controlling Interest 201,000
20. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000.
On that date Razor had the following book values and market values.
Book Value Market Value
Cash P40,000 P40,000
Inventory 170,000 230,000
Plant Assets (net) 620,000 700,000
Cost of Goods Sold 220,000
Depreciation Expense 60,000
Liabilities (300,000) (300,000)
Common Stock (10,000)
Retained Earnings (450,000)
Sales (350,000)
What is the amount of purchase differential recognized on the acquisition date
consolidated balance sheet with respect to plant assets?
Answer: Plant Asset- net (MV) 700,000
Plant Asset- net (BV) 620,000
Increase in Plant Asset 80,000

21. Polygon Enterprises acquires 100 percent of Square Corporation. At the acquisition date,
Square’s plant assets have an historical cost of P350,000 and an accumulated depreciation
of P110,000. The appraised value of Square’s plant assets is P260,000. What is the
amount of the acquisition date worksheet elimination to plant assets (indicate debit or
credit)?
Answer: Appraised Value of Plant Assets P 260,000
Historical Cost 350,000
P 90,000 - CREDIT
22. Polygon Enterprises acquires 100 percent of Square Corporation. At the acquisition date,
Square’s plant assets have an historical cost of P350,000 and an accumulated depreciation
of P110,000. The appraised value of Square’s plant assets is P260,000. What is the
amount of the acquisition date worksheet elimination to accumulated depreciation
indicate debit or credit)?
Answer: 110,000 – DEBIT
23. Phillips Corporation acquires 80 percent of Baker Brothers. At the acquisition date,
Baker’s plant assets have an historical cost of P420,000 and an accumulated depreciation
of P180,000. The appraised value of Baker’s plant assets is P300,000. What is the
amount of the acquisition date worksheet elimination to plant assets (indicate debit or
credit)?
Answer: Plant Asset(A.V) P 300,000
Plant Asset (HC) 420,000
P 120,000 – CREDIT
24. Phillips Corporation acquires 80 percent of Baker Brothers. At the acquisition date,
Baker’s plant assets have an historical cost of P420,000 and an accumulated depreciation
of P180,000. The appraised value of Baker’s plant assets is P300,000. What is the
amount of the acquisition date worksheet elimination to accumulated depreciation
(indicate debit or credit)?
Answer: P 180,000 – DEBIT
25. Freight Company acquired 100 percent of Shipper Enterprises. At the acquisition date,
Shipper’s plant assets have an historical cost of P250,000 and an accumulated
depreciation of P56,000. The appraised value of Shipper’s plant assets is P300,000.
What is the amount of the acquisition date worksheet elimination to plant assets (indicate
debit or credit)?
Answer: Plant Asset (av) P 300,000
Plant Asset (HC) 250,000
50,000- DEBIT

26. Freight Company acquired 100 percent of Shipper Enterprises. At the acquisition date,
Shipper’s plant assets have an historical cost of P250,000 and an accumulated
depreciation of P56,000. The appraised value of Shipper’s plant assets is P300,000.
What is the amount of the acquisition date worksheet elimination to accumulated
depreciation (indicate debit or credit)? Answer: P 56,000 – DEBIT
27. Rope Corporation purchased 70 percent of Skip Enterprises. At the acquisition date,
Skip’s plant assets have an historical cost of P450,000 and an accumulated depreciation
of P260,000. The appraised value of Skip’s plant assets is P600,000. What is the amount
of the acquisition date worksheet elimination to plant assets (indicate debit or credit)?
Answer: Plant Asset (av) P 600,000
Plant Asset (HC) 450,000
150,000- DEBIT

28. Rope Corporation purchased 70 percent of Skip Enterprises. At the acquisition date,
Skip’s plant assets have an historical cost of P450,000 and an accumulated depreciation
of P260,000. The appraised value of Skip’s plant assets is P600,000. What is the amount
of the acquisition date worksheet elimination to accumulated depreciation (indicate debit
or credit)? Answer: P 260,000
29. On March 17, 20x2, Cho Co. acquired 100% of the shares of Bisset Ltd. for P1,000,000.
The net assets of Bisset included 10 acres of land, which was carried on Bisset's books at
P100,000 even though its market value was approximately P350,000. Cho did not own
any land prior to the acquisition of Bisset's net assets. If push down accounting was
applied, what amount would be shown for land on the consolidated the separate-entity
balance sheets for Bisset on March 18, 20x2? Answer: C
Consolidated Separate Entity Consolidated Separate
Entity
a. P100,000 P100,000 c. P350,000 P350,000
b. P350,000 Nil d. P350,000 P100,000
30. Three Kings Games is in the process of combining with Jacks-or-Better Playing Card
Company. The business combination has been negotiated where each of Jacks’ 500,000
shares of stock (market value P42.50) will be exchanged for 1.7 shares of Three Kings
Games (market value P25). This exchange ratio will change if the per share market value
of Three Kings changes by more than 20 percent before the combination is completed.
For example, if the market price of Three Kings decreases 25 percent (from P25 to
P18.75), then the exchange ratio will increase 25 percent from 1.7 shares of Three Kings
per share of Jacks’ to 2.125 shares (1.7 x 1.25). Determine the investment amount
recognized if Three Kings’ stock price increases from P25 to P40.
Answer: P 500,000 x 1.7 x 25 = P 21,250,000
Use the following information for question 31 to 36:
RR Records Inc. acquired all of DD Studios’ voting shares on January 1, 20x4, for P280,000.
RR’s balance sheet immediately after the combination contained the following balances:

RR Records, Inc.
Balance Sheet
January 1, 20x4
P120,00 Accounts Payable . . . . . . . . .
Cash and Receivables . . . . . . . . 0 . P 75,000
Inventory . . . . . . . . . . . . . . . . . . Taxes Payable . . . . . . . . . . . .
.. 110,000 . . 50,000
Land . . . . . . . . . . . . . . . . . . . . .
... 70,000 Notes Payable . . . . . . . . . . . .300,000
Buildings and Equipment (net) . Common Stock . . . . . . . . . . .
. 350,000 . 400,000
Investment in DD stock . . . . . . Retained Earnings . . . . . . . . .
.. 280,000 . 105,000
P930,00
0 P930,000

DD’s balance sheet at acquisition contained the following balances:

 DD Studios
Balance Sheet
January 1, 20x4
Accounts Payable . . . . . . . . .
Cash and Receivables . . . . . . .P. 40,000 . P 90,000
Inventory . . . . . . . . . . . . . . . . . .
.. 180,000 Notes Payable . . . . . . . . . . . .250,000
Buildings and Equipment (net) . Common Stock . . . . . . . . . . .
. 350,000 . 100,000
Goodwill . . . . . . . . . . . . . . . . . .
.... 30,000 Additional Paid- in Capital . 2. 00,000
_______ Retained Earnings . . . . . . . . .
_ . (40,000)
P600,000 P600,000

On the date of combination, the inventory held by DD had a fair value of P170,000, and its
buildings and recording equipment had a value of P375, 000. Goodwill reported by DD
resulted from a purchase of SS Enterprises in 20x1. SS was liquidated and its assets and
liabilities were brought onto DD’s books.

Compute the balances to be reported in the consolidated balance sheet immediately after the
acquisition for:
31. Inventory
Answer: RR Records P 110,000
DD Studios 180,000
Less: DD Failure (10,000)
Inventory 280,000

32. Buildings and Equipment (net)

Answer: Building & Equipment (net) P 350,000
Building & Equipment (net) 350,000
Add: Difference from MV 25,000
Building & Equipment (net) 725,000

33. Investment in DD Stock = Answer: 0

34. Goodwill
Answer: FV of Consolidation Given 280,000
Less: FV of Decibels Net Asset
Cash & Receivables P 40,000
Inventory 170,000
Building – net 375,000
Accounts Payable (90,000)
Notes Payable (250,000) (245,000)
Goodwill 35,000

35. Common Stock- Answer: P 400,000 – Subsidiary only

36. Retained Earnings- Answer: P105,000

Use the following information for question 37 to 41:

RR Corporation acquired 80 percent of the stock of GG Company by issuing shares of its
common stock with a fair value of P192,000. At that time, the fair value of non-controlling
interest was estimated to be P48,000 and the fair values of its identifiable assets and liabilities
were P310,000 and P95,000, respectively. GG’s assets and liabilities had book values of
P220,000 and P95,000, respectively.
Compute the following amounts to be reported immediately after the combination:
37. Investment in GG reported by RR. Answer: P 192,000
38. Increase in identifiable assets of the combined entity.
Answer: P 310,000 – Increase
39. Increase in total liabilities of the combined entity
Answer: Increase Liability @ P 95,000
40. Full-goodwill for the combined entity
Answer: Common Stock (FV) P 192,000
Non-Controlling Interest 48,000
Less: Fair Value of Identifiable
Assets (310,000)
Liabilities (95,000)
Goodwill P 25,000

41. Non-controlling interest (full-goodwill) reported in the consolidated balance sheet.

Answer: Non-controlling interest will be reported at P48,000
P 240,000 x .20 = P 48,000