SAINT COLUMBAN COLLEGE

College of Business Education

Pagadian City

HANDOUT BUS-COM 2307

MULTIPLE CHOICE QUESTIONS – STOCK ACQUISITION
AT DATE OF ACQUISITION
1. On January 1, 2023, Lester Company purchased 70% of Stork Corporation’s P5 par common
stock for P600,000. The book value of Stork’s net assets was P640,000 at that time. The fair
value of Stork’s identifiable net assets was the same as their book value except for equipment
that was P40,000 in excess of the book value. In the January 1, 2023 consolidated balance
sheet full-goodwill would be reported as:
a. P152,000
b. P177,143
c. P80,000
d. P0

2. On January 5, 2023, Scale Corporation acquires all of the outstanding ordinary shares of
Wheel Corporation for P2,677,500. The assets and liabilities of Wheel Corporation on its
separate books were:
Cash 175,000
Accounts Receivable (net of P87,500 allowance
for doubtful accounts) 875,000
Inventory 525,000
Property, Plant, and Equipment (net of P350,000
accumulated depreciation) 1,050,000
Liabilities 525,000

On the date of acquisition, the fair value of the following assets were as follows:
Accounts Receivable, Net 822,500
Inventory 455,000
Property, Plant, and Equipment, Net 1,400,000

What is the amount of goodwill to be presented in the consolidated balance sheet?

a. P525,000
b. P350,000
c. P122,500
d. P227,500

FOR QUESTIONS 3 – 4:
Pinehollow Corporation acquired all of the outstanding stock of Stonebriar Corporation by issuing
100,000 shares of its P1 par value stock. The shares have a fair value of P15 per share. Pinehollow
also paid P25,000 in direct acquisition costs. Prior to the transaction, the corporations have the
following balance sheets:
Pinehollow Stonebriar
Cash 150,000 50,000
Accounts Receivable 500,000 350,000
Inventory 900,000 600,000
Property, Plant, and Equipment 1,850,000 900,000
Total Assets 3,400,000 1,900,000

Current Liabilities 300,000 100,000

Bonds Payable 1,000,000 600,000

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ACCOUNTING FOR BUSINESS COMBINATIONS HANDOUT 2307
MYLENE P. ALFANTA, CPA
 Common Stock, P1 par 300,000 100,000
Additional Paid-in Capital 800,000 900,000
Retained Earnings 1,000,000 200,000
Total Liabilities and Equity 3,400,000 1,900,000

The fair values of Stonebriar’s inventory and property, plant, and equipment are P700,000 and
P1,000,000, respectively.

3. The journal entry to record the purchase of Stonebriar would include a:

a. Credit to common stock for P1,500,000
b. Credit to additional paid-in capital for P1,100,000
c. Debit to investment in subsidiary for P1,500,000
d. Debit to investment in subsidiary for P1,525,000

4. Goodwill associated with the purchase of Stonebriar is:

a. P100,000
b. P125,000
c. P300,000
d. P325,000

FOR QUESTIONS 5 – 9:
On June 30, 2023, PC Company purchased all of the common stock at Silicon Company by issuing
100,000 shares of its P1 par value common stock, with a market value of P25 per share. PC Company
incurred P400,000 in registration and issuing costs, and P250,000 in consulting and legal fees, paid
in cash. The book value of Silicon Company at the date of acquisition was P1,000,000, consisting of
capital stock of P560,000, retained earnings of P280,000 credit balance, treasury stock of P35,000,
and accumulated other comprehensive income of P195,000 credit balance. The carrying values of
Silicon’s reported assets and liabilities are equal to its approximate fair value, but it has P700,000
customer lists not reported on its balance sheet.

5. PC’s journal entry to record this acquisition includes a credit to additional paid-in capital for:
a. P1,750,000
b. P2,000,000
c. P2,150,000
d. P2,400,000

6. PC’s journal entry to record this acquisition includes a debit to investment in Silicon for:
a. P1,950,000
b. P2,500,000
c. P2,750,000
d. P3,150,000

7. Eliminating entry includes:

a. A debit to accumulated other comprehensive income for P195,000.
b. A debit to treasury stock for P35,000.
c. A credit to cash for P650,000
d. A credit to investment for P840,000.

8. Eliminating entry includes a debit to goodwill for:

a. P800,000
b. P1,050,000
c. P1,200,000
d. P1,500,000

9. Eliminating entry includes:

a. A credit to capital stock for P100,000.

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ACCOUNTING FOR BUSINESS COMBINATIONS HANDOUT 2307
MYLENE P. ALFANTA, CPA
 b. A debit to customer lists for P700,000.
c. A credit to accumulated other comprehensive income for P195,000.
d. A credit to investment for P1,900,000.

FOR QUESTIONS 10 – 12:

The Statement of Financial Position of Son Corporation on June 30, 2023 is presented below:

Assets Liabilities and Shareholders’ Equity

Current Assets 39,000 Liabilities 105,000
Land 264,000 Ordinary Share Capital 180,000
Building 132,000 Share Premium 165,000
Equipment 105,000 Retained Earnings 90,000
Total Assets 540,000 Total Liabilities and SHE 540,000

All the assets and liabilities of Son Corporation assumed to approximate their fair values except for
land and building. It is estimated that the land has a fair market value of P420,000 and the fair value
of the building increased by P96,000. Parent Corporation acquired 80% of Son’s ordinary shares for
P600,000.

10. Assuming the consideration paid includes control premium of P170,400. How much is the
goodwill using proportionate share approach?
a. P50,400
b. P63,000
c. P220,800
d. None of the Above

11. Assuming the consideration paid excludes control premium of P27,600 and the fair value of
the non-controlling interest is P147,300, how much is the goodwill using the fair value basis?
a. P60,300
b. P87,900
c. P187,750
d. None of the Above

12. Assuming the consideration paid includes control premium of P44,400, how much is the
goodwill or bargain purchase gain using the fair value basis?
a. P87,000 Bargain Purchase Gain
b. P7,500 Goodwill
c. P51,900 Goodwill
d. None of the Above

FOR QUESTIONS 13 – 21:

Wicked Corporation acquired 70 percent of Humble Company’s common stock on December 31, 2023.
Balance sheet data for the two companies immediately following the acquisition follows:

Wicked Humble
Cash 44,000 30,000
Accounts Receivable 110,000 45,000
Inventory 130,000 70,000
Land 80,000 25,000
Buildings and Equipment 500,000 400,000
Accumulated Depreciation (223,000) (165,000)
Investment in Humble Company 150,500 -
Total Assets 791,500 405,000

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ACCOUNTING FOR BUSINESS COMBINATIONS HANDOUT 2307
MYLENE P. ALFANTA, CPA
 Accounts Payable 61,500 28,000
Taxes Payable 95,000 37,000
Bonds Payable 280,000 200,000
Common Stock 150,000 50,000
Retained Earnings 205,000 90,000
Total Liabilities and Shareholder’s Equity 791,500 405,000

At the date of business combination, the book value of Humble Company’s net assets and liabilities
approximated fair value except for inventory, which had a fair value of P85,000, and land which had a
fair value of P45,000. The fair value of the non-controlling interest was P64,500 on balance sheet
prepared immediately after the business combination.

13. What amount of goodwill under partial approach will be reported?

a. P28,000
b. P40,000
c. P52,000
d. P45,000

14. What amount of goodwill under full approach will be reported?

a. P0
b. P28,000
c. P40,000
d. P52,000

15. What amount of total assets will be reported?

a. P1,081,000
b. P1,121,000
c. P1,196,500
d. P1,231,500

16. What amount of total liabilities will be reported?

a. P265,000
b. P436,500
c. P622,000
d. P701,500

17. What amount will be reported as non-controlling interest under partial approach?
a. P52,500
b. P60,900
c. P64,500
d. P57,000

18. What amount will be reported as non-controlling interest under full approach?
a. P42,000
b. P52,500
c. P60,900
d. P64,500

19. What amount of consolidated retained earnings will be reported?

a. P295,000
b. P268,000
c. P232,000
d. P205,000

20. What amount of total shareholders’ equity will be reported?

a. P355,000
b. P397,000

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ACCOUNTING FOR BUSINESS COMBINATIONS HANDOUT 2307
MYLENE P. ALFANTA, CPA
 c. P419,500
d. P495,000

FOR QUESTIONS 22 – 25:

On January 2, 2023, Paint Corporation acquired the majority ordinary share of Brush Company. The
separate statement of financial position of Paint and Brush and consolidated statement of financial
position are presented below:

Paint Brush Consolidated

Cash 650,000 260,000 910,000
Accounts Receivable 520,000 130,000 650,000
Inventory 1,300,000 650,000 2,210,000
Equipment 3,250,000 1,300,000 5,200,000
Investment in Brush Company ? - -
Goodwill - - 52,000
Total Assets ? 2,340,000 9,022,000

Accounts Payable 455,000 260,000 715,000

Notes Payable 1,900,000 - 1,900,000
Interest Payable 50,000 - 50,000
Ordinary Share Capital ? 975,000 1,625,000
Retained Earnings 3,685,500 1,105,000 ?
Non-Controlling Interest - - 1,046,500
Total Liabilities and Equity 7,715,500 2,340,000 ?

21. What is the total fair value of net assets of Brush Company?
a. P9,022,000
b. P1,306,500
c. P2,990,000
d. P2,080,000

22. What is the controlling interest percentage?

a. 80%
b. 60%
c. 70%
d. 65%

23. What is the consolidated retained earnings?

a. P3,685,500
b. P4,790,000
c. P4,732,000
d. P2,080,000

24. What is the fair value of Brush Company’s inventory?

a. P260,000
b. P910,000
c. P650,000
d. P1,560,000

25. What is the amount of consideration paid by Paint Corporation?

a. P1,995,500
b. P1,625,000
c. P2,158,000
d. P2,093,000

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ACCOUNTING FOR BUSINESS COMBINATIONS HANDOUT 2307
MYLENE P. ALFANTA, CPA