I. Big Corp purchases the net assets of Small Corporation for P500,000 cash.

Prior to the combination, Small Corporation has the following statement of

financial position :
Assets Liabilities and Equity
Accounts receivable 120,000 Current liabilities 50,000
Inventories 100,000 Common Stock,P10 par 200,000
PPE 280,000 Retained earnings 250,000
Total 500,000 500,000
Fair market values agree with book values except for inventories and ppe
which have market values of P140,000 and P300,000 respectively. To
consummate the transaction, Big Corp incurs P5,000 acquisition related
costs.
Required ;
1. Record the acquisition on Big Corp’s books.
2. Record the sale on the books of Small Corp. and the subsequent total
liquidation of the corporation.
Solution : Req 1
Price paid 500,000
Less: FMV of net assets acquired :
Accounts receivable 120,000
Inventories 140,000
PPE 300,000
Total 560,000
Less: Current liabilities 50,000 510,000
Gain on business acquisition ( 10,000 )

Journal entries ( Books of Big Corp)

Accounts receivable 120,000
Inventories 140,000
PPE 300,000
Current liabilities 50,000
Cash 500,000
Gain on acquisition 10,000

Acquisition expense 5,000

Cash 5,000

Req 2 ( Books of Small Corp)

Cash 500,000
Current liabilities 50,000
Retained earnings 50,000
Accounts receivable 120,000
Inventories 100,000
PPE 280,000
 To close the assets and liabilities of Small.

Common stock 200,000

Retained earnings(250,000 + 50,000) 300,000
Cash 500,000
To record the liquidation of Small.

II. Dog Company acquired the net assets of Cat Corp. on January 3,2023, for
P565,000 cash. In addition, P5,000 of professional fees were incurred in
consummating the combination. At the time of acquisition, Cat Corp reported
the following book values and current market data :
BV FV
Cash and receivables 50,000 50,000
Inventory 100,000 150,000
Building and equipment net 200,000 300,000
Patent 200,000
Total 350,000 700,000

Accounts payable 30,000 30,000

Common stock 100,000
APIC 80,000
Retained earnings 140,000
Total 350,000

Required : Give the journal entries required on the books of Dog Company
and Cat Company.
Books of Dog Company :
Cash and receivables 50,000
Inventory 150,000
Building and equipment, net 300,000
Patent 200,000
Accounts payable 30,000
Cash 565,000
Gain on acquisition 105,000
To record acquisition.

Acquisition expense 5,000

Cash 5,000

Books of Cat Company

Cash 565,000
Accounts payable 30,000
 Cash and receivables 50,000
Inventory 100,000
Building and equipment 200,000
Retained earnings 245,000

Common stock 100,000

APIC 80,000
Retained earnings (140,000 +245,000) 385,000
Cash 565,000

III. On January 1, 2021, Tagalog Corp issued 6,000 shares of its P10 par value
common stock to acquire the assets and liabilities of Visaya Corp. Tagalog
shares were selling at P90 on that date. Carrying values and fair value data
for Visaya Corp at the time of acquisition were as follows :
CV FV
Cash and receivables 50,000 50,000
Inventory 100,000 200,000
Building and equipment ,net 270,000 300,000
Total 420,000 550,000

Accounts payable 50,000 50,000

Common stock ,P20 par 200,000
Retained earnings 170,000
Total 420,000

Tagalog Corp paid P25,000 for Sec registration and issuance of its new
shares and paid professional fees of P15,000.
Required : Record the entries on the books of Tagalog and Visaya Corp in
connection with the business combination.
Price paid (6,000 x P90) 540,000
Less: FMV of NA acquired :
(550,000-50,000) 500,000
Goodwill 40,000

Books of Tagalog:
Cash and receivables 50,000
Inventory 200,000
Building and equipment 300,000
Goodwill 40,000
Accounts payable 50,000
Common stock 60,000
Share premium (6,000 x80) 480,000
To record acquisition

Share premium 25,000

Acquisition expense 15,000
Cash 40,000

Books of Visaya Corp:

Stocks of Tagalog 540,000
Accounts payable 50,000
Retained earnings 170,000
Cash and receivables 50,000
Inventory 100,000
Building and equipment 270,000

Common stock 200,000

Retained earnings(170,000 +170,000) 340,000
Stocks of Tagalog 540,000
To record subsequent liquidation.