Chapter 14

37 CHAPTER 14 MULTIPLE CHOICES - COMPUTATIONAL 14-1:

d Price paid (8,000 shares x P30) Contingent consideration Acquisition cost

14-2:

P240,000 5,000 P245,000

b Purchase price Less: Fair value of net assets acquired Goodwill

14-3:

P250,000 180,000 P70,000

c Purchase price (100,000 shares x P36) Contingent consideration Total costs

14-4:

14-5:

P3,600,000 120,000 P3,720,000

d Price paid (600,000 shares x P50) Less: goodwill recorded Fair value of net assets acquired

P30,000,000 6,120,000 P23,880,000

Capital stock issued (600,000 shares x P10) APIC (600,000 shares xP40) – P30,000 Increase in CJ’s equity

P 6,000,000 23,970,000 P29,970,000

d Price paid Less: Fair value of net assets acquired Current assets Plant assets Liabilities Income from acquisition

P2,550,000 P1,100,000 2,200,000 ( 300,000)

APIC: [(P2,550,000 – P1,200,000) - P35,000*] *Costs of SEC registration P12,000 Cost of issuing stock certificates Documentary stamp tax Total

3,000,000 P( 450,000) P1,315,000

3,000 20,000 P35,000

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38 14-6:

a (at fair value at date of acquisition)

14-7:

d Abel net income, January to December (P80,000 + P1,320,000) P1,400,000 Cain net income, April to December 400,000 Total net income P1,800,000

14-8:

a Price paid Less: Fair value of net assets acquired Cash Inventory Property, plant and equipment Liabilities Income from acquisition

14.9

P 800,000 P 160,000 380,000 1,120,000 ( 360,000)

1,300,000 P (500,000)

a Price paid Less: Fair value of net assets acquired (P600,000 – P188,000) Goodwill Avon’s assets Bell’s assets at fair value Total assets

P 700,000 412,000 P 288,000 2,000,000 600,000 P2,888,000

14-10: c Debit to expenses: Broker’s fee Pre-acquisition audit fee General administrative costs Legal fees for business combination Other acquisition costs Total

P 50,000 40,000 15,000 32,000 6,000 P 143,000

Debit to APIC Audit fee for SEC registration of stock issue SEC registration fee for stock issue Total

P 46,000 5,000 P 51,000

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39 14-11: d Consideration given: Cash Stocks issued at fair value Total Less: fair value of net assets acquired: Cash Inventories Other current assets Plant assets (net) Current liabilities Other liabilities Goodwill

P270,000 330,000 P600,000 P40,000 100,000 20,000 180,000 (30,000) (40,000)

Total assets after combination: Total assets before combination Cash paid (P270,000 + P70,000) Registration and issuance costs of shares issued Polo’s assets after combination Assets acquired at fair values Goodwill Total assets after combination

270,000 P330,000 P 760,000 (340,000) ( 30,000) P 390,000 340,000 330,000 P1,060,000

14-12: d Price paid Less: Fair value net assets acquired Goodwill

P1,400,000 1,350,000 P 50,000

14-13: a Price paid Less: Fair value of net identifiable assets acquired: Current assets P 80,000 Non-current assets 120,000 Liabilities ( 20,000) Income from acquisition

P160,000

Non- current assets

P120,000

180,000 P(20,000)

14-14: c Price paid Less: Fair value of identifiable assets acquired: Cash P 60,000 Merchandise inventory 142,500 Plant assets (net) 420,000 Liabilities (135,000) Goodwill

P600,000

487,500 P112,500

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40 14-15: b Price paid Less: Fair value of identifiable assets acquired Goodwill MM’s net assets at book value PP’s net assets at fair value Total assets after combination

P1,000,000 800,000 P 200,000 1,200,000 800,000 P2,200,000

14-16: c, Under the acquisition method assets are recorded at their fair values (P225.000) 14-17: d Capital stock issued at par (10,000 shares x P10) APIC (10,000 shares x P40) Total

P100,000 400,000 P500,000

14-18: d, net assets are recorded at their fair values; No APIC is recorded and stock acquisition costs of P5,000 is recognized (P405,000 less P400,000). 14-19: a Income from acquisition Fair value of net assets acquired P2,000,000 – P400,000) Price paid

P 100,000 1,600,000 1,500,000

Shares to be issued (P1,500,000 ÷ P40)

37,500 shares

14-20: d Goodwill Fair value of net assets acquired Price paid

P 200,000 1,600,000 P1,800,000

Shares to be issued (P1,800,000 ÷ P40)

45,000 shares

14-21: c Total assets of Pablo before acquisition at book value Total assets acquired from Siso at fair value (100,000 +440,000) Total assets Less: cash paid (15,000 + 25,000) Total assets after cash payment Goodwill to be recognized (Sched 1) Total assets after combination

P 700,000 540,000 1,240,000 40,000 1,200,000 195,000 1,395,000

Sched 1: Consideration given: Purchase price (30,000 shares x P20) 600,000 Contingent consideration 75,000 Fair value of net assets acquired (540,000 – 60,000) Goodwill

675,000 480,000 195,000

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14-22: a Capital stock issued at par (P500,000 + P300,000) APIC (50,000 + 300,000) – 15,000 Retained earnings (P100,000 – 25,000) Stockholders equity after acquisition

P 800,000 335,000 75,000 1,210,000

14-23: a B Company P4,400,000 4,150,000 P 250,000

Consideration given Less: fair value of net assets acquired Goodwill

C Company P638,000 370,000 P268,000

Total goodwill recorded (250,000 + 268,000)

518,000

14-24: a A Company B Company C Company Cash paid for acquisition costs (P20,000 + P10,000) Goodwill (see 14-23) Total assets after combination

5,250,000 6,800,000 900,000 (30,000) 518,000 13,438,000

14-25: a Stockholders equity before acquisition – A Company Capital stock issued at par (229,000 shares x P10) Additional paid-in-capital [(229,000 x 12) – 10,000] Other acquisition cost (reduction from retained earnings) Stockholders equity after acquisition 14-26: 1. a Equipment: P180,000/5 yrs. = Building: P550,000/20 yrs. = Total depreciation 2. b Price paid Less fair value of net assets acquired: Current assets Land Equipment Building Current liabilities Goodwill 14-27: b Price paid Final fair value of net assets Goodwill

P1,300,000 2,290,000 2,738,000 (20,000) 6,308,000

P36,000 27,500 P63,500 P900,000 P100,000 50,000 180,000 550,000 (150,000)

730,000 P170,000 P32 M 28 M P 4 M

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PROBLEMS Problem 14-1 1.

Books of Big Corporation (a) To record acquisition of net assets of Small: Accounts receivable Inventories Property, plant and equipment Current liabilities Income from acquisition Cash (b) To record acquisition-related costs: Acquisition expense Cash

120,000 140,000 300,000 50,000 10,000 500,000 5,000 5,000

Computation of Income from Acquisition: Price paid Less: Fair value of net identifiable assets acquired: Accounts receivable P120,000 Inventories 140,000 Property, plant and equipment 300,000 Current liabilities ( 50,000) Income from acquisition 2.

Books of Small Corporation (a) To record the sale of net assets to Big: Cash Current liabilities Accounts receivable Inventories Property, plant and equipment Retained earnings (b) To record liquidation of the corporation: Common stock Retained earnings Cash

P500,000

510,000 P( 10,000)

500,000 50,000 120,000 100,000 280,000 50,000 200,000 300,000 500,000

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Problem 14-2 (1) To record the acquisition of net assets: Cash Inventory Building and equipment – net Patent Accounts payable Cash Income from acquisition

50,000 150,000 300,000 200,000 30,000 565,000 105,000

Computation of Income from Acquisition Price paid Less: Fair value of net identifiable assets acquired Total assets P700,000 Accounts payable ( 30,000) Income from acquisition (2) To record acquisition-related costs: Acquisition expenses Cash

P565,000 670,000 P(105,000) 5,000 5,000

Problem 14-3 (1) To record acquisition of net assets: Cash and receivables Inventory Building and equipment Goodwill Accounts payable Common stock, P10 par value Additional paid-in capital

50,000 200,000 300,000 40,000 50,000 60,000 480,000

Computation of Goodwill Price paid (6,000 shares x P90) Less: fair value of net identifiable assets acquired Total assets P550,000 Accounts payable ( 50,000) Goodwill (2) To record acquisition-related costs: Additional paid-in capital Acquisition expenses Cash

P540,000 500,000 P 40,000

25,000 15,000 40,000

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Problem 14-4 (1) To record acquisition of net assets: Cash Accounts receivable Inventory Land Building and equipment Bond discount Goodwill Accounts payable Bonds payable Common stock, P10 par value Additional paid-in capital

60,000 100,000 115,000 70,000 350,000 20,000 95,000

Computation of Goodwill Purchase price (12,000 shares x P50) Less: Fair value of net identifiable assets acquired Total assets P695,000 Total liabilities ( 190,000) Goodwill

10,000 200,000 120,000 480,000 P600,000 505,000 P 95,000

(2) To record acquisition-related costs: Additional paid in capital Acquisition expense Cash

18,000 10,000 28,000

Problem 14-5 1. 2. 3. 4. 5. 6. 7.

Common stock:: P200,000 + (8,000 shares x P10) Cash and receivables: P150,000 + P40,000 Land: P100,000 + P85,000 Building and equipment – net: P300,000 + P230,000 Goodwill: (8,000 shares x P50) - P355,000 APIC: P20,000 + (8,000 shares x P40) Retained earnings

P280,000 190,000 185,000 530,000 45,000 340,000 330,000

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Problem 14-6 Combined Statement of Financial Position After acquisition Based on P40/share

Based on

P20/share Cash and receivables Inventory Building and equipment Accumulated depreciation Goodwill Total assets

P 350,000 645,000 1,050,000 (200,000) 180,000 P2,025,000

P 350,000 645,000 1,050,000 (200,000) P1,845,000

Accounts payable Bonds payable Common stock P10 Par value Additional paid-in capital Retained earnings(including income from acquisition) Total liabilities and stockholders’ equity

P 140,000 485,000 450,000 550,000 400,000 P2,025,000

P 140,000 485,000 450,000 250,000 520,000 P1,845,000

Computation of Goodwill – Based on P40 per share: Price paid (15,000 shares x P40) Less: Fair value of net identifiable assets (P545,000 – P125,000) Goodwill Computation of Income from Acquisition – Based on P20 per share: Price paid (15,000 shares x P20) Less: Fair value of net identifiable assets Income from acquisition (added to retained earnings of Red)

P600,000 420,000 P180,000 P300,000 420,000 P(120,000)

Problem 14-7 (a)

Combined Statement of Financial Position January 1, 2013

ASSETS Cash and receivables Inventory Land Plant and equipment Less: Accumulated depreciation Goodwill Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Capital stock, P20 par value APIC Retained earnings

P 110,000 142,000 115,000 P540,000 150,000 390,000 13,000 P 770,000 P 100,000 214,000 216,000 240,000

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46 Total liabilities and stockholders’ equity

P 770,000

Problem 14-7, continued:

Computation of Goodwill Price paid (700 shares x P300) Less: Fair value of net identifiable assets acquired (P217,000 – P20,000) Goodwill (b)

P210,000 197,000 P 13,000

Stockholders’ Equity section (1) With 1,100 shares issued Capital stock: P200,000 + (1,100 shares x P20) APIC Retained earnings Stock issuance costs (P350,000 – 328,000 ) Total

P222,000 -0240,000 (22,000) P440,000

(2) With 1,800 shares issued Capital stock: P200,000 + (1,800 shares x P20) APIC: P20,000 + (1,800 x P280) =524,000 – 350,000 Retained earnings Total

P 236,000 174,000 240,000 P 650,000

(3) With 3,000 shares issued Capital stock: P200,000 + (1,000 shares x P20) APIC: P20,000 + (1,000 x P280) = P300,000 - P300,000 Retained earnings Stock issuance costs (P350,000 – P300,000) Total

P220,000 -0240,000 (50,000) P410,000

Problem 14-8 Revenue Comprehensive income Earnings per share (a) (b) (c) (d) (e)

2011 (a) P1,400,000 500,000 P 5.00

2012 P1,800,000 (b) 545,000 © P 4.84 (d)

2013 P2,100,000 700,000 P 5.60 (e)

Separate figures for Dollar Transport only. P2,000,000 – P200,000 P620,000 - P55,000 P545,000 / 112,000 shares (100,000 + 125,000) ÷ 2 P700,000 / 125 shares

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Problem 14-9 a.

Books of Peter Industries: (1) To record acquisition of net assets: Cash Accounts receivable Inventory Long-term investments Land Rolling stock Plant and equipment Patents Special licenses Discount on equipment trust notes Discount on debentures Goodwill Allowance for bad debts Current payables Mortgage payables Premium on mortgage payable Equipment trust notes Debenture payable Common stock APIC – common

28,000 258,000 395,000 175,000 100,000 63,000 2,500,000 500,000 100,000 5,000 50,000 109,700 6,500 137,200 500,000 20,000 100,000 1,000,000 180,000 2,340,000

Computation of Goodwill Price paid (180,000 shares x P14) Less: fair value of net identifiable assets acquired Total assets P4,112,500 Total liabilities (1,702,200) Goodwill (2) To record acquisition-related costs: Additional paid in capital Acquisition expenses Cash

P2,520,000 2,410,300 P 109,700

42,000 135,000 42,000

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Problem 14-9, continued:

b.

Books of HCC: Common stock APIC – Common Treasury stock To record retirement of treasury stock. P7,500 = P5 x 1,500 shares P4,500 = P12,000 – P7,500 Investment in stock - Peter Allowance for bad debts Accumulated depreciation Current payable Mortgage payable Equipment trust notes Debentures payable Discount on bonds payable Cash Accounts receivable Inventory Long-term investments Land Rolling stock Plant and equipment Patents Special licenses Gain on sale of assets and liabilities To record sale of assets and liabilities to Peter.

7,500 4,500 12,000

2,520,000 6,500 614,000 137,200 500,000 100,000 1,000,000

Common stock 592,500 APIC – Common 495,500 APIC – Retirement of preferred 22,000 Retained earnings 1,410,000 Investment in stock – Peter To record retirement of HCC stock and distribution of Peter Industries stock: P592,500 = P600,000 - P7,500 P495,500 = P500,000 – P4,500 P1,410,000 = P220,000 + P1,189,900

40,000 28,000 258,000 381,000 150,000 55,000 130,000 2,425,000 125,000 95,800 1,189,900

2,520,000

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Problem 14-10 a.

Increase in capital stock (P240,00 – P200,000) Increase in APIC (P420,000 – P60,000) Value of shares issued

P 40,000 360,000 P 400,000

b.

Total assets after combination Total assets of Subic before combination Total fair value of assets of Clark before combination

P1,130,000 650,000 P 480,000

Total liabilities after combination P220,000 Total liabilities of Subic before combination (140,000) Fair value of Clark’s net assets (including goodwill) Less: Goodwill Fair value of Clark’s net assets before combination

( 80,000) P 400,000 55,000 P 345,000

c.

Par value of common stock after combination Par value of common stock before combination Increase in par value Divided by par value per share Number of shares issued

P 240,000 200,000 P 40,000 ÷ P5 8,000 shares

d.

Value of shares computed in (a) Number of shares issued computed in © Market price per share

P 400,000 ÷ 8,000 P 50

Problem 14-11 a.

Inventory reported by Son at date of combination was P70,000 (325,000 – P20,000 – P55,000 – P140,000 – P40,000)

b.

Fair value of total assets reported by Son: Fair value of cash Fair value of accounts receivable Fair value of inventory Buildings and equipment reported following purchase Buildings and equipment reported by Papa Fair value of Son’s total assets

c.

P 20,000 55,000 110,000 P570,000 (350,000)

220,000 P405,000

Market value of Son’s bond: Book value reported by Son Bond premium reported following purchase Market value of bond

P100,000 5,000 P105,000

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Problem 14-11, continued:

d.

Shares issued by Papa Corporation: Par value of stock following acquisition Par value of stock before acquisition Increase in par value of shares outstanding Divide by par value per share Number of shares issued

e.

f.

P190,000 (120,000) P 70,000 ÷ P5 14,000

Market price per share of stock issued by Papa Corporation Par value of stock following acquisition Additional paid-in capital following acquisition

P190,000 262,000

Par value of stock before acquisition Additional paid-in capital before acquisition Market value of shares issued in acquisition Divide by number of shares issued Market price per share

P120,000 10,000

P452,000 (130,000) P322,000 ÷ 14,000 P 23.00

Goodwill reported following the business combination: Market value of shares issued by Papa Fair value of Son’s assets Fair value of Son’s liabilities: Accounts payable P 30,000 Bond payable 105,000 Fair value of liabilities Fair value of Son’s net assets Goodwill recorded in business combination Goodwill previously on the books of Papa Goodwill reported

P322,000 P405,000

(135,000) (270,000) P 52,000 30,000 P 82,000

g.

Retained earnings reported by Son at date of combination was P90,000 (P325,000 – P30,000 – P100,000 – P50,000 – P55,000)

h.

Papa’s retained earnings of P120,000 will be reported.

i.

1.

Acquisition expense Additional paid-in capital Cash

8,500 6,300 14,800

2.

Goodwill previously computed (no changes)

P82,000

3.

Additional paid-in capital reported following combination Stock issue costs

P262,000 (6,300)

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51 Total additional paid-in capital reported

P255,700

Problem 14-12 (1)

(2)

(3)

Liability from contingent consideration 80,000 Loss on contingent payment 40,000 Cash 2 x (average income of P110,000 – P50,000) = P120,000 Additional paid in capital Common stock, P1 par 2 x (average income of P110,000 – P50,000) ÷ P10

12,000

Additional paid in capital Common stock, P1 par Deficiency (P12 – P8) x 200,000 shares Divided by fair value per share Additional shares to be issued

100,000

120,000

12,000

100,000 P800,000 ÷ 8 100,000 shares

Problem 14-13 (1)

To record the acquisition of net assets of Baby Company: Current assets Non-current assets Goodwill Current liabilities Non-current liabilities Estimated liability for contingent consideration Cash Common stock, (15,000 shares x P4) Additional paid in capital (15,000 shares x P36) Goodwill computation: Price paid: Cash Common stock (15,000 shares x P40) Contingent consideration (P100,000 x 75%) Total price paid Less: Fair value of net assets acquired Current assets P 256,000 Non-current assets 660,000 Current liabilities ( 162,000) Non-current liabilities ( 440,000) Goodwill

(2)

Goodwill Estimated liability for contingent consideration

256,000 660,000 761,000 162,000 440,000 75,000 400,000 60,000 540,000

P 400,000 600,000 75,000 1,075,000

314,000 P 716,000 15,000 15,000

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52 (P100,000 x 90%) - P75,000

Problem 14-14 (1)

Price paid Less: Fair value of net assets acquired Goodwill recorded

P500,000 400,000 P100,000

(2 – a) No, because the carrying amount of the net assets of the business is less than the recoverable of the unit. (2 – b) Yes. Estimated recoverable amount of the unit Carrying value of the unit, excluding goodwill Implied fair value of the goodwill Existing recorded goodwill (No. 1) Estimated impairment loss Entry: Impairment loss Goodwill

P400,000 340,000 60,000 100,000 P(40,000) 40,000 40,000

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