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TEST BANKADV ACCTG (by dayag)BUSINESS COMBINATION (20x4 Revisions)Statutory Mergers and Statutory Consolidation John Corporation concluded that the fair value of Carlo Company was P80,000and paid that amount to acquire all of its net assets. Carlo reported assets with a book value of P60,000 and fai...

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TEST BANK ADV ACCTG (by dayag)

BUSINESS COMBINATION (20x4 Revisions) Statutory Mergers and Statutory Consolidation 7.

John Corporation concluded that the fair value of Carlo Company was P80,000and paid that amount to acquire all of its net assets. Carlo reported assets with a book value of P60,000 and fair value of P98,000 and liabilities with a book value and fair value of P23,000 on the date of combination. John also paid P3,000 to a search firm for finder’s fees related to the acquisition. What amount will be recorded as goodwill by John Corp.? A. P 0 B. P5,000

C. D.

P 8,000 P13,000

9. 1. On April 1, 20x4, Carlo Corp. paid cash of P620,000 for all of the net assets of John Company appropriately accounted for as a merger. The recorded assets and liabilities of John Corporation onApril 5, 20x4 follow: Cash Inventory Property, plant and equipment (net of accumulated depreciation of P220,000) Goodwill (net of accumulated amortization of P50,000) Liabilities Net assets

P60,000 180,000 320,000 100,000 (120,000) P540,000

On April 1, 20x4, John’s inventory had a fair value of P150,000, and the property, plant and equipment (net) had a fair value of P380,000. The amount of goodwill recorded in the books of Carlo as a result of the business combination should be: A. P150,000 B. P120,000 10.

C. D.

P50,000 P 0

The Marc Company had these accounts at the time it was acquired by Francis Co.: Cash Accounts receivable Inventories Plant, property and equipment Accounts payable

P 72,000 914,000 240,000 1,392,800 701,600

Francis Co. paid P2,800,000 for net assets of Marc Company. It was determined that fair market values of inventories and plant, property, and equipment were P266,000 and P1,800,000, respectively. An assumed contingent liability arising from past events with a fair value amounting to P20,000 and as such amount is considered reliable measurement. In the books of Francis Co., this transaction resulted in: A. B. C. D.

Goodwill recorded at P882,800 Goodwill recorded at P449,600 Goodwill recorded at P469,600 Current assets increased by P469,600

12. 2. On December 1, 20x4. Darlene Ltd. acquired all assets and liabilities of Shyndelle Ltd with DarleneLtd. issuing 100,000 shares to acquire these net assets. The fair value of ShyndellesLtd’s. assetsand liabilities at this date were: Cash Furniture and fittings Accounts receivable Plant Accounts payable Current tax liability Provision for annual leave

P 50,000 20,000 5,000 125,000 15,000 8,000 2,000

The financial year for Darlene Ltd.is January- December. The fair value of each Darlene Ltd. Share at acquisition date is P1.90. At acquisition date, the acquirer could only determine a provisional fair value for the plant. On March 1, 20x5, Darlene Ltd. received the final value from the independent appraisal, the fair value at acquisition date being P131,000. Assuming the plant had a further five-year life from the acquisition date. The amount of goodwill arising from the business combination at December 1, 20x4: A. P15,000 B. P13,000

C. D.

P5,000 P 0

18-27. Francis acquires assets and liabilities of Marc Company on January 1, 20x5. To obtain these shares, Francis pays P800 (in thousands) and issues 20,000 shares of P20 par value common stock on this date. Francis stock had a fair value of P36 per share on that date. Francis also pays P30 (in thousands) to a local investment firm for arranging the transaction. An additional P20 (in thousands) was paid by Francis in stock issuance costs. The book values for both Francis and Marc as of January 1, 20x5 follow. The fair value of each of Francis and Marc accounts is also included. In addition, Marc holds a fully amortized trademark that still retains an P80 (in thousands) value. The figures below are in thousands. Any related question also is in thousands. Marc Company Francis, Inc. Book Value Fair Value Cash P1,800 P160 P160 Receivables 960 360 320 Inventory 1,320 520 600 Land 600 240 Buildings (net) 2,400 440 Equipment (net) 720 200 Accounts payable 960 120 Long-term liabilities 2,280 680 Common stock 2,400 160 Retained earnings 2,160 960

260 560 150 120 600

Assuming the combination is accounted for as an acquisition, immediately after the acquisition, in the balance sheet of Francis: What amount will be reported for goodwill? A. P110 B. P130

C. P140 D. P270

Using the same information above, what amount will be reported for receivables? A. P1,320 B. P1,280

C. P1,000 D. P 920

Using the same information above, what amount will be reported for inventory? A. P1,920 B. P1,840

C. P1,400 D. P1,240

Using the same information above, what amount will be reported for buildings (net)? A. P2,840 B. P2,520

C. P2,280 D. P2,960

Using the same information above, what amount will be reported for equipment (net)? A. P770 B. P670

C. P870 D. P720

Using the same information above, what amount will be reported for long-term liabilities? A. P2,960 B. P2,880

C. P2,360 D. P2,200

Using the same information above, what amount will be reported for common stock? A. P2,400 B. P2,560

C. P2,800 D. P2,960

Using the same information above, what amount will be reported for retained earnings? A. P2,130 B. P2,160

C. P3,050 D. P3,120

Using the same information above, what amount will be reported for additional paid in capital? A. P330 B. P300

C. P320 D. P350

Using the same information above, what amount will be reported for cash after the purchase transaction? A. P1,960 B. P1,800 29.

C. P1,750 D. P1,110

On January 1, 20x5, the fair values of Pia’s net assets were as follows: Current Asset Equipment Land Buildings Liabilities

P200,000 300,000 100,000 600,000 160,000

On January 1, 20x5, Ruth Company purchased the net assets of Pia Company by issuing 200,000

shares of its P1 par value stock when the fair value of the stock was P6.20. It was further agrees that Ruth’s would pay an additional amount on January 1, 20x7, if the average income during the 2-year period of 20x5-20x6 exceeded P160,000 per year. The expected value of this consideration was calculated as P268,000; the measurement period is one year. What amount will be recorded as goodwill on January 1, 20x5? A. Zero B. P200,000

C. P360,000 D. P568,000

Using the same information above, assuming that on August 1, 20x5 the contingent consideration happens to be P340,000, what amount will then be recorded as goodwill on the said date? A. Zero B. P172,000

C. P332,000 D. P540,000

Using the same information above, assuming that on January 1, 20x7, the date of settlement of the contingent consideration clause agreement for P350,000, the entry should be: A. Estimated liability for contingent consideration P340,000 Loss on estimated contingent consideration 10,000 Cash P350,000

B. Estimated liability for contingent consideration Cash

350,000

C. Estimated liability for contingent consideration 368,000 Cash Gain on estimated contingent consideration

350,000

350,000 18,000

D. No entry required.

35.

Mark Corporation acquired Ray Company through an exchange of common shares. All of the Ray’s assets and liabilities were immediately transferred to Mark. Mark’s common stock was trading at P20 per share at the time of exchange. Following selected information is also available.

Par value of shares outstanding Additional paid in capital

Before Acquisition P200,000 350,000

After Acquisition P250,000 550,000

Based on the preceding information, what number of shares was issued at the time of the exchange? A. P 5,000 B. P10,000

C. P12,500 D. P17,500

Using the same information above, what is the par value of Mark’s common stock? A. P10 B. P 5

C. P 4 D. P 1

Using the same information above, what is the fair value of Ray’s net assets, if goodwill of P56,000 is recorded?

A. P194,000 B. P244,000

C. P300,000 D. P306,000

38. AB Corporation acquired all the assets and liabilities of RG Corporation by issuing shares of its common stock on January 1, 20x4. Partial balance sheet data for the companies prior to the business combination and immediately following the combination is provided: AB Book Value Cash P 65,000 Accounts receivable 72,000 Inventory 33,000 Buildings and equipment (net) 400,000 Goodwill Total Assets P 570,000 Accounts Payable Bonds payable Common stock, P2 par Additional paid-in capital Retained earnings Total Liabilities and Equities

P 50,000 250,000 100,000 65,000 105,000 P 570,000

RG Book Value P 25,000 20,000 45,000 150,000 ? P 240,000 P

25,000 100,000 25,000 20,000 70,000 P 240,000

Combination P 90,000 94,000 88,000 650,000 P

?

P

75,000 350,000 160,000 245,000

? P

?

What number of shares did AB issue for this acquisition? A. B. C. D. 39.

80,000 50,000 30,000 17,500

At what price was AB stock trading when stock was issued for this acquisition? A. B. C. D.

P2.00 P5.63 P6.00 P8.00

40. What was the fair value of the net assets held by RG at the date of combination? A. B. C. D.

P115,000 P227,000 P270,000 P497,000

41. What amount of goodwill will be reported by the combined entity immediately following the combination? A. B. C. D.

P 13,000 P125,000 P173,000 P413,000

42. What balance in retained earnings will the combined entity report immediately following the combination? A. P 35,000 B. P 70,000

C. P105,000 D. P175,000 46. 1. Companies A and B decide to consolidate. Asset and estimated annual earnings contributions are as follows: Co. A Co. B Total Net asset contribution P300,000 P400,000 P700,000 Estimated annual earnings contribution 50,000 80,000 130,000 Stockholders of the two companies agree that a single class of stock be issued, that their contributions be measured by net assets plus allowances for goodwill, and that 10% be considered as a normal rate of return. Earnings in excess of the normal rate of return shall be capitalized at 20%in calculating goodwill. It was also agreed that the authorized capital stock of the new corporation shall be 20,000 shares with a par value of P100 a share. The amount of goodwill credited to Co. A A. P120,000 B. P150,000

C. D.

P100,000 P200,000

Total contribution of Co. B (net assets plus goodwill): A. P400,000 B. P500,000

C. D.

P600,000 P700,000

48. 1. DG Inc., a new corporation formed and organized because of the recent consolidation of R Inc. and G Inc., shall issue 10% participating preferred stocks with a par value of P100 for D Inc and G Inc. net assets contributions, and common shares with a par value of P50 for the difference between the total shares to be issued and the preferred shares to be issued. The total shares to be issued by DG shall be equivalent to average annual earnings capitalized at 10%. Relevant data on D Inc. and G Inc. follows:

Total Assets Total Liabilities Annual earnings (average)

D Inc. P720,000 432,000 46,080

The total preferred shares to be issued by DG Inc. A. B. C. D.

8,640 5,760 2,880 7,280

The amount of goodwill to be recognized by DG Inc. A. B. C. D.

P288,000 P280,000 P864,000 P860,000

CONSOLIDATED Finc’l Statement– Stock Acquisition

G Inc. P921,600 345,600 69,120

1-4

Company A acquires 80% of Company B for P5,000,000, carrying value of Company B net assets at time of acquisition being P3,000,000 and fair value of these net identifiable assets being P4,000,000. Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill: A. P 800,000 B. P1,000,000

C. P1,800,000 D. P2,250,000

Using the same information above, the amount of non-controlling interest arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill: A. P600,000 B. P800,000

C. P1,250,000 D. P1,500,000

Using the same information above, the amount of goodwill arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P800,000 B. P1,000,000

C. P1,800,000 D. P2,250,000

Using the same information above, the amount of non-controlling interest arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P600,000 B. P800,000 9-13

C. P1,250,000 D. P1,500,000

Pine Company acquires 15 percent of Shine Company’s common stock for P1,000,000 cash and carries the investment using the cost method. A few months later, Pine purchases another 60 percent of Shine Company’s stock for P4,320,000. At that date, Shine Company reports identifiable assets with a book value ofP7,800,000 and a fair value of P10,200,000, and it has liabilities with a book value and fair value of P3,800,000. The fair value of the 25% noncontrolling interest in Shine Company is P1,800,000. Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill: A. P168,000 B. P200,000

C. P600,000 D. P800,000

Using the same information above, the amount of non-controlling interest arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill: A. P 600,000 B. P1,000,000

C. P1,600,000 D. P1,800,000

Using the same information above, the amount of goodwill arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P168,000 B. P200,000

C. P600,000 D. P800,000

Using the same information above, the amount of non-controlling interest arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P600,000

C. P1,600,000

B. P1,000,000

D. P1,800,000

Using the same information above, the amount of gain or loss should be recognized when the additional shares are acquired: A. Zero B. P80,000 gain

C. P 80,000 loss D. P136,000 loss

14-17. 1. On September 1, 20x4, Company A acquires 75% (750,000 ordinary shares) of Company B for P7,500,000 (P10per share). In the period around the acquisition date, Company B’s shares are trading at about P8 per share. Company A pays a premium over market because of the synergies it believes it will get. It is therefore reasonable to conclude that the fair value of Company B’s as a whole may not be P10,000,000. In fact, an independent valuation shows that the value of company B is P9,700,00 (fair value of Company B). Assuming that the fair value of the net identifiable assets is P8,000,000 ( carrying value is P6,000,000). Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial” Goodwill: A. P 200,000 B. P1,500,000 15.

C. D.

P2,000,000 P2,200,000

Using the same information above, the amount of Goodwill arising on consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P 200,000 B. P1,500,000

17.

P1,700,000 P2,000,000

Using the same information above, the amount of non-controlling interest arising on consolidation is to valued on the proportionate basis or “Partial” Goodwill A. P1,500,000 B. P1,875,000

16.

C. D.

C. D.

P1,700,000 P2,000,000

Using the same information above, the amount of non-controlling interest arising on consolidation is tovalued on the full (fair value) basis or “Full/Gross-up” Goodwill: A. P1,500,000 B. P1,875,000

C. D.

P2,000,000 P2,200,000

18-19. All the issued and outstanding common stock of Dau Company were bought by Angeles Companyon October 1, 20x4 for P700,000. The assets and liabilities of Dau Company were: Cash Accounts receivable (net of P25,000 allowance for doubtful accounts) Inventory Property & equipment (net of P100,000 allowance for depreciation) Accounts/ Notes Payable

P 50,000 250,000 150,000 300,000 130,000

On October 1, 20x4 the fair value of the following assets were as follows: Accountsreceivable (net) P235,000 Inventory 130,000 Property & equipment (net) 400,000 There is unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash flow based on estimated future cash flows.

The amount of goodwill as a result of the business combination should be: A. B. C. D. 19.

Using the same information above, the amount of goodwill in the books of Angeles Co, as a result of the business combination should be: A. B. C. D.

20.

P 0 P 35,000 P 65,000 P100,000

P 0 P 35,000 P 65,000 P100,00

On January 1, 20x5, Lotto Company acquires 80% ownership in Dagupan Corporation for P400,000. The fair value of the non-controlling interest at that time is determined to be P100,000. It reports net assets with a book value of P400,000 and fair value of P460,000. Lotto Company reports net assets with a book value of P1,200,000 and a fair value of P 1,300,000 at that time, excluding its investment in Dagupan. What will be the amount of goodwill that would be reported immediately after the combination under current accounting practice if the option of full-goodwill method is used? A. P100,000 B. P 80,000

21.

C. P60,000 D. P40,000

Mark acquired 70% of the net assets of Ray for P1.1 million. The assets of Ray have a book value of 1.2 million and a fair market value of P1.3 million; its liabilities are P.2 million. What is the amount of “excess of cost over book value of subsidiary” on the consolidated balance sheet? A. P0 million B. P.1 million

23.

C. D.

P.2 million P.4 million

Rupert Corporation issued 100,000 shares of P20 for common stock for all the outstanding stock of Rita Corporation in a business combination consummated on July 1, 20x4. Rupert Corporation common stock was selling at P30 per share at the time of the business combination was consummated. Out-of-pocket costs of the business combination were as follows: Finder’s fee P50,000 Accountant’s fee (advisory) 10,000 Legal fees (advisory) 20,000 Printing costs 5,000 SEC registration costs and fees 12,000 P97,000 The fair value of the consideration transferred accounting will be: A. P3,097,000 B. P3,080,000

26.

C. D.

P3,017,000 P3,000,000

Sun Inc. bought all outstanding shares of Shine Corporation on January 1, 20x4, for P700,000 in cash. The portion of the consideration transferred results in a fair-value allocation of P35,000 to equipment and goodwill of P88,000. At the acquisition date, Sun also agrees to pay Shine’s previous owners and additional P110,000 on January 1, 20x6, if Shine earns a 10 percent return

on the fair value of its assets in 20x4 and 20x5. Sun’s profits exceed this threshold in both years. Under which of the following is true? A. The additional P110,000 payment is a reduction in retained earnings. B. The fair value of the expected contingent payment increases goodwill at the acquisition date. C. Goodwill as of January 1, 20x6, increases by P110,000. D. The P110,000 is recorded as an expense in 20x6. 30.

On June 30, 20x4, Moon Corporation purchased for cash at P10 per share all 100,000 shares of the outstanding common stoc...