AFAR: BUSINESS COMBINATION (MERGER / ACQUISITION)

The ff are the condensed Statements of Financial Position of the Brad and Fit

On January 2020:

BRAD FIT
TOTAL ASSETS P 10,250,000 P3,057,500

Liabilities P2,775,000 P800,000

Ordinary Shares 3, 100,000 1,295,000
Share premium 1,250,000 100,000
Retained Earnings 3,125,000 862,500
Total equity 7,475,000 2,257,500
(ordinary shares+share
premium+retained earmings)

Pinnacle Corp. acquired the net assets of both Brad and Fit. Paying cash in the amount of P185,000 and
by issuing 198,500 shares to Brad. Paying cash in the amount of P72,000 and by issuing 54,350 shares to
Fitt. The par value of these shares is P30/share and market value as of Jan.1 2020 is P40/share. Pinnacle
Corp also incurred the following unpaid expenses:

BRAD FITT
Indirect costs P 93,750 P101,250
Finder’s fee 66,250 35,000
Accounting and legal fees for 343,750 362,500
SEC registration
Printing costs of stock 125,000 93,750
certificates

Pinnacle’s Retained Earnings has a balance of P10,750,000 on Jan 1, 2020 immediately before the
acquisition. As a result of the merger, compute for the following:

a. Goodwill
b. Gain on Bargain Purchase
c. Net increase ordecrease in Retained Earnings of Pinnacle Corporation
d. Net increase ordecrease in the Stockholder’s Equity of Pinnacle Corpo
e. Net Increase ordecrease in the identifiable Assets
 Solution:

A: BRAD B. FITT

Cash 185,000
Shares 7,940,000 Cash 72,000
Total consideration given 8,125,000 Shares 2,174,000
FVNA 7,475,000 Total consideration given 2,246,000
Diff of TCG & 650,000 FVNA 2,257,000
FVNA(goodwill) Diff of TCG & FVNA (gain on 11,500
bargain)

BRAD FITT
Indirect costs P 93,750 P101,250
Finder’s Fee 66,250 35,000
Accounting and legal fees for 343,750 362,500
SEC registration
Printing costs of stock 125,000 93,750
certificates

C.

Expenses (296,250) 93,750 + 101,250+ 66,250 + 35,000

Gain on bargain purchase 11,500

Decrease in Retained Earnings (284,750)

D. Brad - 7,940,000

Fitt- - 2,174,000

Expense- ( 296,250)

Gain on BP 11,500

APIC ( 925,000)

Increase

In sHE 8,904,250
E.

B- 10,250,000

F- 3,057,500

Cash (257,000) 185,000 + 72,000

13,050,500