Nama: Alya Sufi Ikrima

NIM: 041911333248
Kelas: A1-SP
Tugas Pertemuan Pertama – Business Combinations

1. Ex 1-3 Direct and indirect costs of issuing common shares

On March 10, PT. Pratama Tbk issued 1,000,000 of its common shares with a par value of $20
to acquire PT. Sumber Tbk. The fair value of the stock at the time was $40 per share. PT.
Pratama Tbk incurred costs of $200,000 for registering and issuing the securities, $50,000 for
printing the shares, $100,000 in accountants for the business combination, $20,000 for
delivering the securities, and $30,000 for transferring the assets of PT. Sumber Tbk.
Required: Calculate the additional paid-in capital that should be recorded by PT. Pratama Tbk
from the transaction.
Answer:
Excess of fair value and par value: $40 - $20 = $20
Additional paid-in capital from stocks issuance (1,000,000 shares x $20) $20,000,000
Less: Cost of registering and issuing,
printing and delivering the shares ($200,000 + $50,000 + 20,000) $270,000
Additional paid-in capital that should be recorded $19,730,000

2. Ex 1-4 Goodwill or gain of bargain purchases in business combination

On July 1, Winter Inc. paid $50,000,000 in cash to acquire Summer Inc. Summer was dissolved
after the acquisition. Information for the fair values of Summer Inc.’s net assets is as follows
(in thousands):
January 1 July 1
Cash $10,000 $12,000
Accounts receivable 20,000 15,000
Inventories 25,000 32,000
Plant assets 40,000 40,000
Accounts payable 14,000 15,000
Notes payable 28,000 25,000
Required: Calculate the goodwill or the gain from the bargain purchase of the business
combination.
Answer:
Fair value of Winter Inc. net assets on July 1 $59,000,000
($12,000 + $15,000 + $32,000 + $40,000 - $15,000 - $25,000)
Less: Purchase price $50,000,000
Gain from bargain purchase $9,000,000

3. P 1-1 Acquisition journal entries

Phen Ltd. issued 500,000 common shares of $10 at par and paid $1,000,000 for the net assets
of Sung Ltd. on August 17, 2014. The market value of Phen Ltd.’s stocks was $20 per share at
the time. Sung Ltd. was dissolved immediately after the acquisition. The information related
to Sung Ltd.’s net assets is as follows (in thousands):
Book Value Fair Value
Cash $ 2,000 $ 2,000
Trade receivables 800 600
Inventories 3,200 3,000
Prepaid expenses 1,000 1,000
Land 6,000 6,800
Building-net 10,000 10,100
Equipment-net 3,500 3,000
Trade payable 1,300 1,500
Notes payable 4,300 4,600
Bonds payable 6,600 7,100
Common stock, $5 par 5,300
Retained Earnings 9,000
Required: Prepare the necessary journal entries for the acquisition.
Answer:
To record issuance of 500,000 shares of $10 par common stock plus $1,000,000 cash in a
business combination with Sung Ltd.
Investment in Sung Ltd. $11,000,000
Common stock, $10 par (500,000 x $10) $5,000,000
Additional paid-in capital (($20 - $10 = $10) x 500,000) $5,000,000
Cash $1,000,000
Journal entries with bargain purchase:
Cash 2,000,000
Trade receivables 600,000
Inventories 3,000,000
Prepaid expense 1,000,000
Land 6,800,000
Building-net 10,100,000
Equipment-net 3,000,000
Trade payable 1,500,000
Notes payable 4,600,000
Bonds payable 7,100,000
Investment in Sung Ltd. 11,000,000
Gain from bargain purchase 2,300,000