QUIZ 2020, questions and answers PDF

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Quiz 15 Use the following information for question 1 and 2: Southern acquired 100 percent of Fast Transit for P275,000. At the date of acquisition, Fast Transit had the following book and market values: Book Value Market Value Cash and Receivables P30,000 P30,000 Inventory 100,000 120,000 Plant Assets (net) 210,000 300,000 Current Liabilities (45,000) (45,000) Long-term Debt (115,000) (115,000) Common Stock (10,000) Retained Earnings (170,000) 1. What is the amount of the “Investment in Fast Transit” account on Southern’s financial records at the acquisition date? P30,000 + P120,000 + P300,000 - P45,000 - P115,000 = P 290,000 2. What amount of pre-acquisition earnings is eliminated in the acquisition date worksheet elimination? None, since there are no revenues and expenses of the acquire up to the date of acquisition. 3. Georgia Corporation purchases all of Gator Company’s stock on June 1 for P1,200,000. At that date, Gator had the following book and market values: Book Value Market Value Cash and Receivables P80,000 P80,000 Inventory 230,000 270,000 Plant Assets (net) 900,000 1,230,000 Cost of Goods Sold 750,000 Operating Expenses 170,000 Dividends 20,000 Liabilities 600,000 600,000 Common Stock 25,000 Retained Earnings 525,000 Sales 1,000,000 What amount of retained earnings is eliminated in the acquisition date worksheet elimination? P 525,000 4. Calendar Company purchases 80 percent of Daily Planner. At the date of acquisition, Daily Planner has revenue of P250,000 and expenses of P170,000. What amount of pre-acquisition earnings will be created on the consolidated income statement at the acquisition date? P250,000 - P170,000 = P 80,000 5. Mobile Corporation acquires 70 percent of Telephone Company’s stock. What amount of noncontrolling interest is recognized on the acquisition date balance sheet if Telephone has the following account balances? (P10,000 + P80,000 + P350,000 - P110,000)(.30) = P 99,000 Book Value Market Value Cash P10,000 P10,000 Inventory 80,000 80,000 Plant Assets (net) 350,000 350,000 Cost of Goods Sold 130,000 Depreciation Expense 20,000 Liabilities (110,000) (110,000) Common Stock (30,000) Retained Earnings (260,000) Sales (190,000) 6. What is the amount of pre-acquisition earnings on the acquisition date consolidated income statement if the parent acquires 90 percent of the subsidiary’s stock and the following income statement accounts exist at the acquisition date? (P60,000 - P12,000 - P5,000 - P8,000 P14,000) = P 21,000 Parent Subsidiary Sales P250,000 P60,000 Cost of Goods Sold 120,000 12,000

Quiz 15 Depreciation Expense Operating Expenses Income Tax Expense

10,000 40,000 32,000

5,000 8,000 14,000

7. Using the same information in No. 6, what is the imputed value of a subsidiary if the parent pays P56,000 for 80 percent of the subsidiary’s stock? P56,000/.8 = P 70,000 Use the following information for question 8 and 11: Jasper Enterprises acquires 70 percent of Felix Corporation on May 1 for P490,000. At the acquisition date, Felix has the following book and market values. Book Value Market Value Cash P30,000 P30,000 Inventory 80,000 140,000 Plant Assets (net) 370,000 460,000 Cost of Goods Sold 120,000 Depreciation Expense 44,000 Liabilities (100,000) (110,000) Common Stock (10,000) Retained Earnings (300,000) Sales (220,000) 8. What is the amount of pre-acquisition earnings recognized on the acquisition date consolidated income statement? (P220,000 - P120,000 - P44,000) = P 56,000 9. What is the imputed market value of Felix? P490,000/.70 = P 700,000 10. What is the goodwill recognized on the acquisition date balance sheet? [(P490,000/.70) - (P30,000 + P140,000 + P460,000 - P110,000)] = P 180,000 11. What amount of purchase differential is recognized on the acquisition date balance sheet with respect to plant assets? P460,000 - P370,000 = P 90,000 12. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000. At the acquisition date, Riddle has the following book and market values. Book Value Market Value Cash P50,000 P50,000 Inventory 140,000 200,000 Plant Assets (net) 530,000 600,000 Cost of Goods Sold 210,000 Depreciation Expense 60,000 Liabilities (230,000) (230,000) Common Stock (10,000) Retained Earnings (350,000) Sales (430,000) What is the amount of pre-cquisition earnings recognized on the acquisition date consolidated income statement? (P430,000 - P210,000 - P60,000) = P 160,000 13. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000. At the acquisition date, Riddle has the following book and market values. Book Value Market Value Cash P50,000 P50,000 Inventory 140,000 200,000 Plant Assets (net) 530,000 600,000 Cost of Goods Sold 210,000 Depreciation Expense 60,000 Liabilities (230,000) (230,000) Common Stock (10,000) Retained Earnings (350,000) Sales (430,000) What is the imputed market value of Riddle? P560,000/.80 = P 700,000

Quiz 15 14. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000. At the acquisition date, Riddle has the following book and market values. Book Value Market Value Cash P50,000 P50,000 Inventory 140,000 200,000 Plant Assets (net) 530,000 600,000 Cost of Goods Sold 210,000 Depreciation Expense 60,000 Liabilities (230,000) (230,000) Common Stock (10,000) Retained Earnings (350,000) Sales (430,000) What is the goodwill recognized on the acquisition date balance sheet? [(P560,000/.80) - (P50,000 + P200,000 + P600,000 - P230,000)] = P 80,000 15. Jackson Enterprises acquires 80 percent of Riddle Corporation on August 1 for P560,000. At the acquisition date, Riddle has the following book and market values. Book Value Market Value Cash P50,000 P50,000 Inventory 140,000 200,000 Plant Assets (net) 530,000 600,000 Cost of Goods Sold 210,000 Depreciation Expense 60,000 Liabilities (230,000) (230,000) Common Stock (10,000) Retained Earnings (350,000) Sales (430,000) What amount of purchase differential is recognized on the acquisition date balance sheet with respect to plant assets? P600,000 - P530,000 = P 70,000 16. Lazer Corporation acquired 80 percent of High-Energy Company on August 1 for P500,000. On that date High-Energy had the following book values and market values. Book Value Market Value Cash P60,000 P60,000 Inventory 130,000 210,000 Plant Assets (net) 580,000 630,000 Cost of Goods Sold 200,000 Depreciation Expense 40,000 Liabilities (250,000) (250,000) Common Stock (10,000) Retained Earnings (450,000) Sales (300,000) What is the amount of non-controlling interest on the acquisition date consolidated balance sheet? ($60,000 + $210,000 + $630,000 - $250,000)(.20) = P 130,000 17. Lazer Corporation acquired 80 percent of High-Energy Company on August 1 for P500,000. On that date High-Energy had the following book values and market values. Book Value Market Value Cash P60,000 P60,000 Inventory 130,000 210,000 Plant Assets (net) 580,000 630,000 Cost of Goods Sold 200,000 Depreciation Expense 40,000 Liabilities (250,000) (250,000) Common Stock (10,000) Retained Earnings (450,000) Sales (300,000) What is the amount of purchase differential recognized on the acquisition date consolidated balance sheet with respect to plant assets? P 50,000

Quiz 15 18. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000. On that date Razor had the following book values and market values. Book Value Market Value Cash P40,000 P40,000 Inventory 170,000 230,000 Plant Assets (net) 620,000 700,000 Cost of Goods Sold 220,000 Depreciation Expense 60,000 Liabilities (300,000) (300,000) Common Stock (10,000) Retained Earnings (450,000) Sales (350,000) What is the amount of the “Investment in Blade” account in the books of the acquirer at the acquisition date? (P40,000 + P230,000 + P700,000 - P300,000)(.70) = P 469,000 19. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000. On that date Razor had the following book values and market values. Book Value Market Value Cash P40,000 P40,000 Inventory 170,000 230,000 Plant Assets (net) 620,000 700,000 Cost of Goods Sold 220,000 Depreciation Expense 60,000 Liabilities (300,000) (300,000) Common Stock (10,000) Retained Earnings (450,000) Sales (350,000) What is the amount of non-controlling interest on the acquisition date consolidated balance sheet? (P40,000 + P230,000 + P700,000 - P300,000)(.30) = P 201,000

20. Razor Corporation acquired 70 percent of Blade Company on October 1 for P420,000. On that date Razor had the following book values and market values. Book Value Market Value Cash P40,000 P40,000 Inventory 170,000 230,000 Plant Assets (net) 620,000 700,000 Cost of Goods Sold 220,000 Depreciation Expense 60,000 Liabilities (300,000) (300,000) Common Stock (10,000) Retained Earnings (450,000) Sales (350,000) What is the amount of purchase differential recognized on the acquisition date consolidated balance sheet with respect to plant assets? P700,000 - P620,000 = P 80,000 21. Polygon Enterprises acquires 100 percent of Square Corporation. At the acquisition date, Square’s plant assets have an historical cost of P350,000 and an accumulated depreciation of P110,000. The appraised value of Square’s plant assets is P260,000. What is the amount of the acquisition date worksheet elimination to plant assets (indicate debit or credit)? P 90,000 credit (P260,000 - P350,000) 22. Polygon Enterprises acquires 100 percent of Square Corporation. At the acquisition date, Square’s plant assets have an historical cost of P350,000 and an accumulated depreciation of P110,000. The appraised value of Square’s plant assets is P260,000. What is the amount of the acquisition date worksheet elimination to accumulated depreciation indicate debit or credit)? P 110,000 debit 23. Phillips Corporation acquires 80 percent of Baker Brothers. At the acquisition date, Baker’s plant assets have an historical cost of P420,000 and an accumulated depreciation of P180,000. The appraised value of Baker’s plant assets is P300,000. What is the amount of the acquisition date worksheet elimination to plant assets (indicate debit or credit)? P 120,000 credit (P300,000 - P420,000)

Quiz 15 24. Phillips Corporation acquires 80 percent of Baker Brothers. At the acquisition date, Baker’s plant assets have an historical cost of P420,000 and an accumulated depreciation of P180,000. The appraised value of Baker’s plant assets is P300,000. What is the amount of the acquisition date worksheet elimination to accumulated depreciation (indicate debit or credit)? P 180,000 debit 25. Freight Company acquired 100 percent of Shipper Enterprises. At the acquisition date, Shipper’s plant assets have an historical cost of P250,000 and an accumulated depreciation of P56,000. The appraised value of Shipper’s plant assets is P300,000. What is the amount of the acquisition date worksheet elimination to plant assets (indicate debit or credit)? P 50,000 debit (P300,000 - P250,000) 26. Freight Company acquired 100 percent of Shipper Enterprises. At the acquisition date, Shipper’s plant assets have an historical cost of P250,000 and an accumulated depreciation of P56,000. The appraised value of Shipper’s plant assets is P300,000. What is the amount of the acquisition date worksheet elimination to accumulated depreciation (indicate debit or credit)? P 56,000 debit 27. Rope Corporation purchased 70 percent of Skip Enterprises. At the acquisition date, Skip’s plant assets have an historical cost of P450,000 and an accumulated depreciation of P260,000. The appraised value of Skip’s plant assets is P600,000. What is the amount of the acquisition date worksheet elimination to plant assets (indicate debit or credit)? P 150,000 debit (P600,000 - P450,000) 28. Rope Corporation purchased 70 percent of Skip Enterprises. At the acquisition date, Skip’s plant assets have an historical cost of P450,000 and an accumulated depreciation of P260,000. The appraised value of Skip’s plant assets is P600,000. What is the amount of the acquisition date worksheet elimination to accumulated depreciation (indicate debit or credit)? P 260,000 debit 29. On March 17, 20x2, Cho Co. acquired 100% of the shares of Bisset Ltd. for P1,000,000. The net assets of Bisset included 10 acres of land, which was carried on Bisset's books at P100,000 even though its market value was approximately P350,000. Cho did not own any land prior to the acquisition of Bisset's net assets. If push down accounting was applied, what amount would be shown for land on the consolidated the separate-entity balance sheets for Bisset on March 18, 20x2? Consolidated Separate Consolidated Separate Entity Entity a. P100,000 P100,000 c. P350,000 P350,000 b. P350,000 Nil d. P350,000 P100,000 30. Three Kings Games is in the process of combining with Jacks-or-Better Playing Card Company. The business combination has been negotiated where each of Jacks’ 500,000 shares of stock (market value P42.50) will be exchanged for 1.7 shares of Three Kings Games (market value P25). This exchange ratio will change if the per share market value of Three Kings changes by more than 20 percent before the combination is completed. For example, if the market price of Three Kings decreases 25 percent (from P25 to P18.75), then the exchange ratio will increase 25 percent from 1.7 shares of Three Kings per share of Jacks’ to 2.125 shares (1.7 x 1.25). Determine the investment amount recognized if Three Kings’ stock price increases from P25 to P40. 500,000 shares x 1.7 exchange ratio x P25 = P21,250,000. The investment value does not change because of a change in the share prices. Use the following information for question 31 to 36: RR Records Inc. acquired all of DD Studios’ voting shares on January 1, 20x4, for P280,000. RR’s balance sheet immediately after the combination contained the following balances: RR Records, Inc. Balance Sheet January 1, 20x4 P120,00 Cash and Receivables . . . . . . . . 0 Accounts Payable . . . . . . . . . .P 75,000

Quiz 15 Inventory . . . . . . . . . . . . . . . . . . . . 110,000 Taxes Payable . . . . . . . . . . . . . . 50,000 Land . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Notes Payable . . . . . . . . . . . . 300,000 Buildings and Equipment (net) . .350,000 Common Stock . . . . . . . . . . . . 400,000 Investment in DD stock . . . . . . . .280,000 Retained Earnings . . . . . . . . . . 105,000 P930,00 0 P930,000

DD’s balance sheet at acquisition contained the following balances: DD Studios Balance Sheet January 1, 20x4 P Cash and Receivables . . . . . . . . 40,000 Accounts Payable . . . . . . . . . . P 90,000 Inventory . . . . . . . . . . . . . . . . . . . . 180,000 Notes Payable . . . . . . . . . . . . 250,000 Buildings and Equipment (net) . .350,000 Common Stock . . . . . . . . . . . . 100,000 Goodwill . . . . . . . . . . . . . . . . . . . . .. 30,000 Additional Paid- in Capital . . 200,000 ________ Retained Earnings . . . . . . . . . .(40,000) P600,00 0 P600,000

On the date of combination, the inventory held by DD had a fair value of P170,000, and its buildings and recording equipment had a value of P375, 000. Goodwill reported by DD resulted from a purchase of SS Enterprises in 20x1. SS was liquidated and its assets and liabilities were brought onto DD’s books. Compute the balances to be reported in the consolidated balance sheet immediately after the acquisition for: 31. Inventory Inventories (P110,000 + P180,000 – P10,000) = P280,000 32. Buildings and Equipment (net) Buildings and Equipment, net (P350,000 + P350,000 + P25,000) = P725,000 33. Investment in DD Stock Investment in DD stock will be fully eliminated and will not appear in the consolidated balance sheet 34. Goodwill P 35,000 Fair value of Subsidiary: Consideration transferred Less: BV of SHE of DD (P100,000 + P200,000 – P40,000) Allocated excess Less: Over/under valuation of A and L: Inc (Decrease) Inventory Buildings and equipment (net)

P280,000 260,000 P 20,000

(P 10,000) 25,000

15,000 5,000 30,000 P 35,000 P

Add: Existing goodwill (to be eliminated Goodwill to be reported

or, (Approach used in business combination – statutory merger/consolidation) Fair value of consideration given P280,000 Fair value of Decibel's net assets: Cash and receivables P 40,000 Inventory 170,000 Buildings and equipment (net) 375,000 Accounts payable (90,000) Notes payable (250,000 ) Fair value of net identifiable Assets (245,000)

Quiz 15 Goodwill to be reported 35. Common Stock eliminated) 36. Retained Earnings is eliminated)

P 35,000

Common stock, P400,000 (parent only, SHE of subsidiary is Retained earnings, P105,000 (parent only, SHE of subsidiary

Use the following information for question 37 to 41: RR Corporation acquired 80 percent of the stock of GG Company by issuing shares of its common stock with a fair value of P192,000. At that time, the fair value of non-controlling interest was estimated to be P48,000 and the fair values of its identifiable assets and liabilities were P310,000 and P95,000, respectively. GG’s assets and liabilities had book values of P220,000 and P95,000, respectively. Compute the following amounts to be reported immediately after the combination: 37. Investment in GG reported by RR. be P192,000.

The investment balance reported by Roof will

38. Increase in identifiable assets of the combined entity. Total assets will increase by P310,000. 39. Increase in total liabilities of the combined entity Total liabilities will increase by P95,000. 40. Full-goodwill for the combined entity The amount of goodwill for the entity as a whole will be P25,000 [(P192,000 + P48,000) - (P310,000 - P95,000)]. 41. Non-controlling interest (full-goodwill) reported in the consolidated balance sheet. Non-controlling interest will be reported at P48,000 (P240,000 x .20)....