SolutionChapter1RevFinal Edited

Chapter 1
Problem I
1. Statutory Merger
Books of Acquirer/Acquiring
Acquisition of Assets and Liabilities:
Current assets 350,000
Plant assets 810,000
Goodwill 290,000
Liabilities 450,000
Common stock P1 par (100,000 shares) 100,000
Additional paid-in capital/ Share premium
(P8 – P1, par) x 100,000 700,000
APIC – Stock Contingent Consideration 200,000
Consideration transferred:
Common stock (100,000 shares x P8) P 800,000
Expected/Probability PV of Stock Price Contingency ___200,000
Consideration transferred P1,000,000
Less: FMV of Assets and Liabilities Acquired:
Current Assets P350,000
Plant Assets 810,000
Liabilities ( 450,000 __710,000
Positive excess: Goodwill P 290,000
2. Stock Acquisition: (to be discussed thoroughly in Chapters 2-5)

Books of Acquirer/Acquiring (Parent Company)
Acquisition of Stocks (Common):
Investment in Subsidiary – Pop 1,000,000
Common stock P1 par (100,000 shares) 100,000
Share premium/Additional paid-in capital
(P8 – P1, par) x 100,000 700,000
APIC – Stock Contingent Consideration 200,000
Fair Value of Subsidiary

Common stock (100,000 shares x P8) P 800,000
Expected/Probability PV of Stock Price Contingency ___200,000
FV of Subsidiary P1,000,000
Less: Book Value of SHE of Subsidiary - Sons
Common stock P 50,000
Additional paid-in capital/Share premium 170,000
Retained earnings / Accumulated Profit/Loss 400,000 __620,,000
Allocated excess P 380,000
Add (Deduct): Over/undervaluation of Assets and Liabilities
Decrease in Current Assets (P350,000 – P380,000) P( 30,000)
Increase in Plant Assets (P810,000 – P740,000) 70,000
Decrease in Liabilities (P450,000 – P500,000 50,000 ___90,000
Problem II – Correction: Last paragraph:… 20x7 should be 20x5; 20x8 should be 20x6
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,520
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Estimated liability for Contingent Consideration 400
Common stock, P2 par x 50,000 shares 100
Share premium/APIC (P80 – P2) x 50,000 shares 3,900
Cash P18,000,000
Prob. PV of Contingent Consideration - given
or, P1,000,000 x 40% probability 400,000
Common stock (P80 x 50,000 shares) __4,000,000
Consideration transferred P22,400,000
Less: MV of Assets and Liabilities Acquired:
Cash P 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities ( 47,000,000) 15,880,000
Positive excess: Goodwill P 6,520,000
Acquisition expenses (P1,000,000 + P100,000)

Acquisition-related expenses/Retained earnings/Accum. P&L 1,100
Cash 1,100
Costs to Issue and Register Stocks (P300,000 + P200,000)

Share premium/APIC 500
Cash 500
2.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Long-term liabilities 47,000
Cash 18,000
Estimated liability for Contingent Consideration 400
Common stock, P2 par x 50,000 shares 100
Share premium/APIC (P80 – P2) x 50,000 shares 3,900
Retained earnings (Gain on acquisition) 3,480
Cash P 18,000,000
Prob. PV of Contingent Consideration - given
or, P1,000,000 x 40% probability 400,000
Common stock (P80 x 50,000 shares) ___4,000,000
Consideration transferred P 22,400,000
Cash P 90,000
Receivables 190,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Noncompetition agreements 10,000,000
Current liabilities ( 400,000)
Long-term liabilities ( 47,000,000) _25,880,000
Negative excess: Gain on acquisition P( 3,480,000)
Acquisition expenses (P1,000,000 + P100,000)

Acquisition-related expenses/Retained earnings/Accum P&L 1,100
Cash 1,100
Costs to Issue and Register Stocks (P300,000 + P200,000)

Cash 500
3.
Post-Combination Balance Sheet: (requirement 1)
Assets Liabilities and Stockholders’ Equity
Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Estimated liability for Cont. Cons 400,000
Inventories 27,000,000 Long-term liabilities 117,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 23,900,000
Goodwill __6,520,000 Treasury stock ( 1,000,000)
Total P201,700,000 Total P 201,700,000
*25,000,000 – 1,100,000, acquisition-relate/merger expenses = 23,900,000.

Assets Liabilities and Stockholders’ Equity
Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Estimated liability for Cont. Cons 400,000
Inventories 27,000,000 Long-term liabilities 117,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 27,380,000
Noncompetition agreement _10,000,000 Treasury stock __( 1,000,000)
Total P 205,180,000 Total P 205,180,000
*25,000,000 – 1,100,000 + 3,480,000 = 27,380,000
4.
a. P201,700,000 c. P58,400,000 e. P83,400,000
b. P118,300,000 d. P23,900,000
a. P205,180,000 c. P58,400,000 e. P86,880,000
b. P118,300,000 d. P27,380,000
Problem III
1.
(a) P133,400,000:
Pop (P81,000,000 – P1,100,000) P 79,900,000
Sicle: P1,500,000 + P500,000 + P6,000,000 + P16,000,000 + P2,000,000
+ P5,000,000 + P22,500,000 (goodwill) 53,500,000
Total Assets P133,400,000
(b) P37,500,000
Pop (P4,000,000 + P20,000,000) P 24,000,000
Sicle: P1,500,000 + P12,000,000 13,500,000
Total Liabilities P 37,500,000
(c) P74,900,000
Pop: P40,000,000 + (P100 – P10) x 400,000 - P1,100,000 P 74,900,000
Sicle: ________0
APIC P 74,900,000
(d) P12,000,000
Pop: P 12,000,000
Sicle: ________0
Retained earnings P 12,000,000
(e) P95,900,000
Pop:
Stockholders’ Equity:
Common stock (P5,000,000 + P4,000,000) P 9,000,000
APIC (c) 74,900,000
RE (d) 12,000,000
P 95,900,000
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 22,500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Common stock 4,000,000
Additional paid-in capital 36,000,000
Shares (400,000 x P100) P 40,000,000
Current assets P 1,500,000
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Current liabilities ( 1,500,000)
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill P 22,500,000
Costs to Issue and Register Stocks
Share Issue Costs/APIC 1,100,000
Cash 1,100,000
2.
(a) P111,460,000:
Pop (P81,000,000 – P540,000, out-of-pocket) P 80,460,000
Sicle: P1,500,000 + P500,000 + P6,000,000 + P16,000,000 + P2,000,000
+ P5,000,000 31,000,000
(b) P37,700,000
Pop (P4,000,000 + P20,000,000 + P200,000) P 24,200,000
Sicle: P1,500,000 + P12,000,000 13,500,000
Total Liabilities P 37,700,000
(c) P48,240,000
Pop: P40,000,000 + (P100 – P10) x 90,000 shares +
+ P300,000 – P20,000 – P90,000 – P50,000 P 48,240,000
Sicle: ________0
APIC P 48,240,000
(d) P19,620,000
Pop: (P12,000,000 – P80,000 – P40,000 – P100,000 – P70,000
- P60,000 – P30,000 + P8,000,000 P 19,620,000
Sicle: ________0
Retained earnings P 19,620,000
(e) P73,760,000
Pop:
Stockholders’ Equity:
Common stock [P5,000,000 + (90,000 shares x P10)] P 5,900,000
APIC (c): 48,240,000
RE (d) 19,620,000
P 73,760,000
Shares (90,000 x P100) P 9,000,000
Prob. PV of Cash Contingent Consideration 200,000
Prob. PV of Stock Price Contingency ____300,000
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Long-term liabilities (12, 000,000) ( 17,500,000)
Negative excess: Gain on acquisition (P 8,000,000)
3. P500,000
Shares (100,000 x P100) P 10,000,000
Estimated liability for Contigent Cons. ____8,000,000
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Long-term liabilities (12, 000,000) (17,500,000)
4. In relation to No. 3: P8,000,000 – P7,800,000 = P200,000.

(a) Within Measurement Period
Estimated liability for Contingent Cons. 200,000
Goodwill 200,000
(b) Due to subsequent events:

Estimated liability for Contingent Cons. 200,000
Gain on acquisition/Retained earnings 200,000
Problem IV
1.
(in millions)
Cash and receivables 200
Inventories 400
Property, plant & equipment 5,500
Customer contracts 25
In-process R&D 300
Goodwill 2,035
Long-term debt 7,300
Warranty liability 10
Estimated liability for Contigent Cons. 50
Common stock 700
Note: Read the topic “Items included in Goodwill” in Chapter 1 about “Skilled (assembled) workforce” (they
are not identifiable at the date of acquisition) and “Potential Contracts” (they are not qualified as assets at the
acquisition date).
Shares P 700,000,000
Estimated liability for Contigent Cons. ___50,000,000
Cash and receivables P 200,000,000
Property, plant & equipment 5,500,000,000
Customer contracts 25,000,000
In-process R&D 300,000,000
Long-term debt (7,300,000,000)
Warranty liability ( 10,000,000) (1,285,000,000)
Positive excess: Goodwill P2,035,000,000
Acquisition expenses
Acquisition-related expenses/Retained earnings 150
Cash 150
Costs to Issue and Register Stocks

Cash 100
2. (in millions)
Goodwill 1,500
Property, plant & equipment 1,500
Problem V
1.
a. The computation of goodwill is as follows:
Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess – Goodwill P 102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 102,000
Accounts payable 62,000
Other liabilities 168,000
Estimated Liability for Contingent Consideration 36,000
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
Acquisition-related expenses 78,000

Cash 78,000
Acquisition related costs – direct costs.
Paid-in capital in excess of par 32,400

Cash 32,400
Acquisition related costs – costs to issue and register
stocks.
Acquisition-related expenses 27,600

Cash 27,600
Acquisition related costs – indirect costs.
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash P 162,000
Inventories 360,000
Land 348,000
Goodwill 102,000
Liabilities and Stockholders’ Equity

Liabilities
Accounts payable P 288,000
Estimated liability for contingent consideration 36,000
Total Liabilities P 912,000
Stockholders’ Equity
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2 158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1
P240,000 + P446,400 – P32,400
2
P264,000 - P78,000 – P27,600
It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively adjusted in value
during the measurement period for new information that clarifies the acquisition-date value. The adjustments
affect goodwill since the measurement period is still within one year (i.e., eight months) from the acquisition
date. Therefore, the goodwill to be reported then on the acquisition should be P78,000 (P102,000 – P24,000).
b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.
3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 + P24,000).
b. The adjustment is still within the measurement period, the entry to adjust the liability would be:
Goodwill 24,000
Adjustment to goodwill due to measurement date.
c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once (last August 31,
20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to P48,000, the entry
to adjust the liability would be:

Gain on estimated contingent consideration 12,000
Adjustment after measurement date.
In this case, the measurement period ends at the earlier of:

 one year from the acquisition date, or
 the date when the acquirer receives needed information about facts and circumstances (or learns
that the information is unobtainable) to consummate the acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate was due to a subsequent event not
existing on the acquisition date.
c.3.2. On December 15, 20x5, the entry would be:
Loss on estimated liability contingent consideration 30,000
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is P260,000,
which means that the target is met, Peter Corporation will make the following entry:
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:

Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 106,386
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence would be:
Gain on estimated contingent consideration 40,385
Since the contingent event does not happen, the position taken by PFRS 3 is that the conditions that
prevent the target from being met occurred in a subsequent period and that Peter had the information to
measure the liability at the acquisition date based on circumstances that existed at that time. Thus the
adjustment will flow through income statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent consideration would be:
Loss on estimated contingent consideration 66,000
Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 120,000
Paid-in capital for Contingent Consideration 18,000
Additional paid-in capital [(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event occurs). Thus, the entry
record the occurrence of such event to reassign the P750,000 original consideration to 36,000 shares (30,000
original shares issued + 6,000 additional shares due to contingency) would be:
7. On January 1, 20x7, the contingent event happens since the fair value per share fall below P25. Thus, the entry
record the occurrence of such event to reassign the P750,000 original consideration to 37,500 shares (30,000
original shares issued + 7,500* additional shares due to contingency) would be:
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:
Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 158,308
Paid-in capital in excess of par[(P25 – P10) x 30,000 shares] 450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to P20, thus requiring
Peter to issue additional shares of stock to the former owners of Saul Corporation. The entry for Peter
Corporation on December 31, 20x5 to record such occurrence such event to reassign the P750,000 original
consideration to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to contingency)
would be:

Common stock, P10 par 75,000
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500
Problem VI
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,000
Cash 720,000
Consideration transferred (P720,000 + P135,000) P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000
2. January 2, 20x6
Cash 135,000
3. January 2, 20x6
Gain on Contingent Consideration 135,000
Problem VII
Current Assets 362,000
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,000
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000 ´P5) 720,000
PIC - par (144,000 x P15 - P5)) 1,440,000
* (144,000 P15) – [P362,000 + P2,013,000 – (P119,000 + P491,000)] = P395,000
Total shares issued (P700,000 / P5) + P20,000 / P5) 144,000
Fair value of stock issued (144,000P15) = P2,160,000
Problem VIII
Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000
Case B
Goodwill P 20,000
Case C
Gain (P 5,000)
Assets Liabilities Retained Earnings
Goodwill Current Assets Long-Lived Assets (Gain)
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000
Problem IX
1.
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
Homer Ltd
Accounts Receivable 34,700
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd 132,000
Cash 132,000
(Being payment of cash consideration)
Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
P P
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Plant and Equipment 46,000
Goodwill 2,000
Interest Payable 4,000
Liquidation Expenses 2,400
Premium on Debentures 2,500
Shareholders’ Distribution 68,000
318,800 318,800
Liquidator’s Cash
P P
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
144,000 144,000
Shareholders’ Distribution
P P
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000
Problem X
Cash 20,000
Accounts Receivable 112,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200
Cash 600,000

Less: Fair value of net assets acquired
(P784,000 – P10,000 – P54,000 – P180,000 - P67,200*) 472,800
Goodwill P127,200
* Increase in net assets

Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000) P148,000
Decrease bonds payable to fair value(20,000)
Increase in net assets P168,000
Establish deferred income tax liability(P168,000 x 40%)P67,200
Multiple Choice Problems

1. c
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect a business
combination. Those costs include finder’s fee; advisory, legal, accounting, valuation and other professional or
consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions
department; and costs of registering and issuing debt and equity securities. Under PFRS 3, the acquirer is
required to recognize acquisition-related costs as expenses in the periods in which the costs are incurred and
the services are received, with one exception, i.e. the costs to issue equity securities are recognized as debit to
APIC/Share premium account.
2. b -
3. b –
4. c -
5. b -
6. b -
7. a -
8. a –
9. a -
10. c -
11. c -
12. b –
13. a –
14. c
15. d -
16. d -
17. c
18. c
19. b
20. c
21. a -
22. b -
23. d
24. c
24. c
25. b
26. b –
27. b
28. c
29. d –
30. d –
31. c –
Note: Same Multiple Choice No. in the textbook

24. d
Entry to record the acquisition on PP’s records:
Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 xP5) 250,000
Paid-In Capital in excess of par (50,000 xP15) 750,000
Contingent performance obligation 62,500
The goodwill is computed as:

Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 62,500
Total P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000) 985,000
Goodwill P 77,500
Acquisition related-expenses 15,000

Cash 15,000
PIC - par 9,000
Cash 9,000
Note: The following amounts will appear in the income statement and statement of retained earnings after
business combination:
PP Inc.
Revenues (1,200,000)
Expenses (P875,000 + P15,000) 890,000
Net income (310,000)
Retained earnings, 1/1 (950,000)
Dividends paid 90,000
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 – P15,000 = P1,170,000
25. c – refer to No. 24 (P400,000 + P750,000 – P9,000 = P1,141,000)
26. d – refer to No. 24
27. b – refer to No. 24
28. b – refer to No. 24
29. d – refer to No. 24 [P77,500 + (P75,000 – P62,500)] = P90,000
30. b – refer to No. 29. It should be noted that goodwill can only be revised once or on instalment fashion (as long as
existing on the date of acquisition), since it is way past the one-year period even though the facts and events
exists on the date of acquisition have no more bearing on the adjustment to goodwill and then it is considered as
subsequent event. So, goodwill remains at P90,000, but the liability will be adjusted to P80,000 by increasing
the liability account by P5,000, the entry would be
Loss on contingent consideration…………………………………. 5,000
Contingent performance obligation………………………. 5,000
31. a
10,000,000 x P5 x 0.20 P 10,000,000
15,000,000 x P5 x 0.10 ___7,500,000
P 17,500,000
17,500,000/(1.12)4 P 11,121,566
32. a – at fair value

33. a
34. a – (P100,000 x ½ = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454
35. c
Fair value of Subsidiary
Consideration transferred………………………………………………………P 200 million
Add: Fair value of contingent consideration……………………………… 10 million
Fair value of subsidiary………………………………………………………… P 210 million
Less: Fair value of identifiable assets and liabilities of Homer...............… 116 million
Goodwill…………………………………………………………………………… P 94 million
Note: The consideration transferred should be compared with the fair value of the net assets acquired,
per PFRS3 par. 32. The contingent consideration should be measured at its fair value at the acquisition
date; any subsequent change in this cash liability comes under PAS 39 Financial instruments:
recognition and measurement and should be recognized in profit or loss, even if it arises within the
measurement period. See PFRS3 pars. 39, 40 and 58.
36. b
37. b
38. d, nearest answer. Correct Answer – P76,500,000
P76,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 +
P1,000,000 - P30,000,000).
39. b, nearest answer, Correct Answer – P13,500,000
P(13,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000 + P4,000,000 +
P1,000,000 - P30,000,000).
40. c
The correcting entry, within the measurement period (as of the date of acquisition means it exists on the
date of acquisition), is:
Goodwill 2,000,000
Patents 2,000,000
41. a
The correcting entry, within the measurement period (as of the date of acquisition means it exists on the
date of acquisition), is:
Gain on acquisition 2,000,000
Liabilities 2,000,000
42. c
Goodwill 400,000
Estimated lawsuit liability 400,000
43. b
Loss on lawsuit 400,000
Estimated lawsuit liability 400,000
44. b
Assets 570,000,000
Liabilities 100,000,000
Capital stock 400,000,000
Cash 50,000,000
PIC-stock contingency 20,000,000
45. b - P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares
46. c
The contingency was originally recorded in equity at the amount of P20,000,000. However, changes in the
value of stock price contingencies do not affect the acquisition price or income. Any changes in value are
adjustments in equity.
PIC- stock contingency 20,000,000

PIC-other 30,000,000
Common stock 50,000,000
47. b
48. c
49. c
50. b – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)
= P104,000
51. d
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
52. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000
53. b – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] = P20,000
54. c - AA records new shares at fair value
Value of shares issued (51,000 × P3)............................................................................ P153,000
Par value of shares issued (51,000 × P1)...................................................................... 51,000
Additional paid-in capital (new shares) ....................................................................... P102,000
Additional paid-in capital (existing shares) ................................................................. 90,000
Consolidated additional paid-in capital........................................................................ P192,000
At the date of acquisition, the parent makes no change to retained earnings.
55. a – at fair value

56. c
Depreciation expense:
Building, at book value (P200,000 – P100,000) / 10 years P 10,000
Building, undervaluation (P130,000, fair value
– P100,000, book value) / 10 years 3,000
Equipment, at book value (P100,000 – P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense= P 28,000
57. c - [(24,000 shares x P30) – P686,400] = P33,600

58. d - [(24,000 shares x P30) – (P270,000 + P726,000 – P168,000)] = P108,000, gain
59. c
A bargain purchase is a business combination in which the net fair value of the identifiable assets acquired and
liabilities assumed exceeds the aggregate of the consideration transferred.
It should be noted that bargain purchase gain would arise only in exceptional circumstances. Therefore,
before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the liabilities
assumed. The acquirer should recognize any additional assets or liabilities that are identified in that
review.
2. Any balance should be recognized immediately in profit or loss.
60. b – no valuation to be recorded in the books of the acquirer

Cost P 180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs 18,000
Net book value P162,000
61. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)] P312,000
Less: Shares issued at par (15,000 shares x P10 par) 150,000
APIC P162,000
Or: since, there is no excess, the P312,000 represents the amount of consideration transferred, therefore the
APIC should be P162,000 [P312,000 / 15,000 shares = P20,80 – P15 = P10.80 x 15,000 shares)
62. c
The consideration transferred should be compared with the fair value of the net assets acquired, per PFRS3
par. 32. The gain of P8 million results from a bargain purchase and should be recognized in profit or loss, per
PFRS3 par. 34.
63. c
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
64. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are measured at their
acquisition-date fair values.
65. c
Selling price P 110,000
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000) 140,000
Loss on sale of business by the acquiree (Comb) P( 30,000)
66. d P215,000 = P130,000 + P85,000
67. b P23,000 = P198,000 – (P405,000 - P265,000 + P15,000 + P20,000)

68. c P1,109,000 = Total Assets of TT Corp. P 844,000
Less: Investment in SS Corp. (198,000)
Book value of assets of TT Corp. P 646,000
Book value of assets of SS Corp. 405,000
Total book value P1,051,000
Payment in excess of book value
(P198,000 - P140,000) 58,000
Total assets reported P1,109,000
69. c P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 + P37,000
+P200,000)
70. d P257,500 = The amount reported by TT Corporation
71. a P407,500 = The amount reported by TT Corporation
72. d – P317,760
Cash P 392,640
Less: FV of net assets acquired:
Assets, fair value (same with book value) P1,198,080
Add (deduct) adjustments:
Obsolete merchandise ( 76,800)
Unrecorded delivery van 230,400
Balancing figure (decrease in the FV of
machinery and equipment ( 96,960)
P1,254,720
Less: Liabilities __683,520 ___571,200
Negative excess – bargain purchase gain P( 178,560)
Therefore, the fair value of machinery and equipment would be P317,760, computed as follows:
BV of machinery and equipment.................................................P 414,720
Decrease in fair value of machinery and equipment................... 96,960
FV of machinery and equipment..................................................P 317,760
73. b
Cash P1,244,400
Assets, fair value (same with book value) P1,198,080
Add (deduct) adjustments:
Obsolete merchandise ( 76,800)
Unrecorded delivery van 230,400
Balancing figure (increase in the FV of
machinery and equipment _ 93,840
P1,445,520
Less: Liabilities __683,520 ___762,000
Positive excess – goodwill P 482,400
Therefore, the fair value of machinery and equipment would be P713,640, computed as follows:
BV of machinery and equipment.................................................P 619,800
Increase in fair value of machinery and equipment.................. . 93,840
FV of machinery and equipment.................................................P 713,640
74. c
Cash P 450,000
Shares 2,058,000
Contingent consideration __177,600
P2,685,600
Less: Fair value of identifiable assets acquired &
liabilities assumed:
Identifiable assets, fair value P2,580,000
Less: Overvaluation of furniture and fixtures ___34,800
P2,545,200
Less: Liabilities __636,000 1,909,200
Positive excess – goodwill (unidentifiable asset) P 776,400
75. c
Books of Acquirer (XX Company):
Assets of Acquirer (XX Company) at book value P5,868,000
Less: Cash paid __450,000 P5,418,000
Assets of Acquiree (YY Company) at fair value:
Book value P2,580,000
Overvaluation (refer to No. 74) ( 34,800) _2,545,200
Total Identifiable Assets P7,963,200
76. b
Increase in liabilities in the books of Acquirer:
Liabilities of acquiree (YY) P 636,000
Accrued expenses 33,600
Contingent consideration __177,600
P 847,200
77. c
Cash P20,940,000
Contingent consideration ___561,600
P21,501,600
Net assets, provisional fair value P20,178,000
Less: Adjustments within the measurement period (the
term “temporary/provisional” means that there is an
existing fact on the date of acquisition and changes
in instalment or multiple fashion can be made: (1,128,000) _19,050,000
Positive excess – goodwill P 2,451,600
78. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4
*Paid-in capital before issuance (P200,000 + P350,000) P 550,000

Paid-in capital after issuance (P250,000 + P550,00) 800,000
Paid-in capital of share issued at the time of exchange P 250,000
Divided by: Fair value per share of stock P 20
Shares issued 12,500
79. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquired P194,000
80. a –
Blue Town:
Stockholders’ equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35 1,190,000
Consolidated SHE/Net Assets P2,870,000
81. d
82. c
Common stock – combined…………………………………………………………P 160,000
Common – Acquirer Zyxel………………………………….. …………………….… 100,000
Common stock issued………………………………………………………………...P 60,000
Divided by: Par value of common stock………………………………………….P 2
Number of Zyxel shares to acquire Globe Tattoo………………………….....… 30,000
83. d
Paid-in capital books of Zyxel (P100,000 + P65,000)………………………........P 165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000)…………………………………………………….… 405,000
Paid-in capital from the shares issued to acquire Globe Tattoo…………... P 240,000
Divided by: No. of shares issued (No. 31)……………………………………..... 30,000
Fair value per share when stock was issued………………………………….... P 8
Or,
Par value of common stock of Zyxel……………………………………… P 2
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 – P65,000)/30,000…………............ 6
Fair value per share when stock was issued……………………………....... P 8
84. b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 – P50,000
- P250,000)……………………………………………………………………. P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 – P75,000 - P350,000)….......... 497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition..…………………………………………………….. P227,000
85. a
Consideration transferred (30,000 shares x P8)………………………………… P240,000
Less: Fair value of net identifiable assets acquired (No. 49)……………….... 227,000
Goodwill……………………………………………………………………………….. P 13,000
86. c
Retained earnings:
Acquirer – Zyxel (at book value)……………………………………….... P105,000
Acquiree– Globe Tattoo (not acquired)……………………………… __ 0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs which may affect
retained earnings on the acquisition date.
87. a
II ____ _____JJ _ ____Total____
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at _ 10%
Total stock to be issued P1,152,000
Less: Net Assets (for P/S) 864,000
Goodwill (for Common Stock) P 288,000
Preferred stock (same with Net Assets):
864,000/P100 par 8,640 shares
Theories
1. True 21. False 41. True 61. c 81. b 101. c 121 a
2. False 22. True 42. False 62. b 82. a 102. d 122. b
3. True 23. False 43. a 63. c 83. d 103. d 123. b
4. True 24. True 44. c 64. d 84. a 104. d 124. c
5. False 25, True 45, b 65, d 85. c 105. c 125. b
6. True 26. False 46. b 66. a 86. d 106. d 126. c
7. False 27. True 47. d 67. a 87. c 107. d 127. c
8. True 28. False 48. c 68. d 88. a 108. d
9. True 29. True 49. c 69. a 89. c 109. b
10. True 30, True 50, b 70, b 90, d 110, c
11. True 31. False 51. a 71. c 91. b 111. c
12. True 32. True 52. b 72. A 92. a 112. c
13. False 33. True 53. c 73. c 93. C 113. a
14. False 34. False 54. a 74. c 94. B 114. d
15. False 35. True 55. c 75. a 95. D 115. d
16. True 36. True 56. b 76. d 96. A 116. c
17. False 37. False 57. a 77. a 97. A 117. b
18. True 38. True 58. c 78. d 98. c 118. b
19. True 39. False 59. a 79. b 99. d 119. b
20. False 40, False 60, c 80, c 100, d 120. a
Note for the following numbers:

2. A horizontal combination occurs when management attempts to dominate an industry.
5. A vertical combination exists when an entity purchases another entity that could have a buyer-seller
relationship with the acquirer. The combination described here is a horizontal combination.
7. A conglomerate combination is one where an unrelated or tangentially related business is acquired. A vertical
combination occurs when a supplier is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a potential acquirer.
15. The sale of the crown jewels results when a target sells assets that would be particularly valuable to the potential acquirer.
The scorched earth defense results when a target generally sells large amounts of assets without regard to the specific
desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net assets or by purchasing the acquiree
voting common stock that represents ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a result, the acquirer book value will not
change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in ownership structure of either
entity.
26. The acquiree corporation becomes an acquirer stockholder, not the acquiree stockholders.
28. A combination that results in one of the original entities in existence after the combination is a statutory
merger.
31. The combination results in the stockholders of one entity controlling the other entity. The Retained Earnings of
the entity acquiring control is carried forward to the newly formed corporation.
34. The stock of the acquiree company must be purchased by the acquirer, but the value transferred to the acquiree
stockholders does not have to be in stock. Payment may be in another asset or the issuance of debt.
37. The consideration to be given by the acquirer is sometimes not completely known because the consideration is
based partially on acquiree future earnings or the market value of acquirer debt or stock.
39. Any change in the number of shares of acquirer stock given returns the purchase price to the agreed level. The
adjustment is to stock and additional paid-in capital. The investment account is unchanged.
40. The acquiree stockholders must continue to have an indirect ownership interest in the acquiree net assets.
Preferred stock or a nonvoting class of stock qualifies as an indirect ownership as well as voting common stock.
42. A net operating loss carryforward cannot be acquired. They are only available to the acquirer if the
combination qualifies as a nontaxable exchange.

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Chapter 1

2. Stock Acquisition: (to be discussed thoroughly in Chapters 2-5)

Fair Value of Subsidiary

Acquisition expenses (P1,000,000 + P100,000)

Costs to Issue and Register Stocks (P300,000 + P200,000)

Acquisition expenses (P1,000,000 + P100,000)

Costs to Issue and Register Stocks (P300,000 + P200,000)

*25,000,000 – 1,100,000, acquisition-relate/merger expenses = 23,900,000.

Post-Combination Balance Sheet: (requirement 2)

4. In relation to No. 3: P8,000,000 – P7,800,000 = P200,000.

(b) Due to subsequent events:

Costs to Issue and Register Stocks

Acquisition-related expenses 78,000

Paid-in capital in excess of par 32,400

Acquisition-related expenses 27,600

Liabilities and Stockholders’ Equity

Estimated liability for contingent consideration 12,000

In this case, the measurement period ends at the earlier of:

b. The journal entries by Pure Corporation to record the acquisition is as follows:

Paid-in capital for Contingent Consideration 92,308

Consideration transferred P600,000

* Increase in net assets

Multiple Choice Problems

Note: Same Multiple Choice No. in the textbook

The goodwill is computed as:

Acquisition related-expenses 15,000

32. a – at fair value

45. b - P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares

PIC- stock contingency 20,000,000

55. a – at fair value

57. c - [(24,000 shares x P30) – P686,400] = P33,600

60. b – no valuation to be recorded in the books of the acquirer

66. d P215,000 = P130,000 + P85,000

67. b P23,000 = P198,000 – (P405,000 - P265,000 + P15,000 + P20,000)

70. d P257,500 = The amount reported by TT Corporation

71. a P407,500 = The amount reported by TT Corporation

*Paid-in capital before issuance (P200,000 + P350,000) P 550,000

9. True 29. True 49. c 69. a 89. c 109. b

10. True 30, True 50, b 70, b 90, d 110, c

11. True 31. False 51. a 71. c 91. b 111. c

12. True 32. True 52. b 72. A 92. a 112. c

13. False 33. True 53. c 73. c 93. C 113. a

14. False 34. False 54. a 74. c 94. B 114. d

15. False 35. True 55. c 75. a 95. D 115. d

16. True 36. True 56. b 76. d 96. A 116. c

17. False 37. False 57. a 77. a 97. A 117. b

18. True 38. True 58. c 78. d 98. c 118. b

19. True 39. False 59. a 79. b 99. d 119. b

20. False 40, False 60, c 80, c 100, d 120. a

Note for the following numbers:

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