SOLUTIONS – BUSINESS COMBINATION - MERGER QUIZZER
1. Cost of investment (100%) P310,000
Fair value of identifiable net assets
Cash P 30,000
Merchandise inventory 75,000
Plant and equipment 190,000
Liabilities ( 60,000) 235,000
Goodwill from business combination P 75,000 C
Note:
Only
identifiable assets are acquired, therefore goodwill recorded by Many Ompong
Inc. is not included in the acquisition.
2. Cost of investment P564,000
Fair value of identifiable net assets
Cash P 50,000
Inventory
200,000
Land 100,000
Plant and equipment 300,000
Accounts payable ( 50,000) 600,000
Excess of fair value over cost of
investment P 36,000
Answer: No goodwill recognized, the excess
is treated under the current IFRS as gain from business combination. A
3. Cost of investment (40,000 x 20) = 800,000 P800,000
Fair value of identifiable net assets
acquired:
Cash P100,000
Inventory 250,000
Equipment under capital lease 220,000
Land 180,000
Building s 300,000
Current liabilities ( 80,000)
Liability under capital lease ( 140,000)
Bonds payable ( 270,000)
560,000
Goodwill from business combination P240,000
4. Cost of investment:
Common shares (24,000 x 20) P 480,000
Preferred shares (12,000 x 100) 1,200,000
Cash 240,000 P1,920,000
Fair value of identifiable net assets
acquired:
Accounts receivable P 158,000
Inventory 412,000
Land 540,000
Buildings
and equipment 1,032,000
Current liabilities ( 228,000)
Bonds payable ( 448,000) 1,466,000
Goodwill from business combination P 454,000 B
5. Cost of investments:
Verk Company (30,000 x 40) P1,200,000
Kent Company (15,000 x 40) 600,000 P1,800,000
Fair value of identifiable net assets
acquired:
Accounts receivable (200,000 +
80,000) P280,000
Inventory (200,000 + 100,000) 300,000
Land (300,000 + 80,000) 380,000
Building and equipment (450,000 +
400,000) 850,000
Current liabilities (160,000 +
55,000) ( 215,000)
Bonds payable (90,000 + 95,000) ( 185,000)
1,410,000
Goodwill from the business combination P 390,000
6. Cost of investment:
Cash P7,500,000
Notes payable 3,500,000 P11,000,000
Fair value of identifiable net assets
acquired:
Cash P 875,000
Receivables 1,225,000
Inventories 1,575,000
Plant assets (7,000,000 + 2,100,000)
9,100,000
Accounts payable ( 1,750,000)
Mortgage payable (
1,315,000) 9,710,000
Goodwill from business combination P
1,290,000 A
7. Present value or market value of Abella’s
bonds:
Present value of maturity value
(9,000,000 x .4564) P4,107,600
Present value of interest (9,000,000
x 3.5% x 13.59) 4,280,850
P8,388,450
Present value or market value of
Joselito’s bonds:
Present value of maturity value
(3,000,000 x .1727) P 518,100
Present value of interest (3,000,000
x 4% x 16.546) 1,985,520
P2,503,620
Cost of investment = market value of bonds P8,388,450
Fair value of identifiable net assets
acquired:
Cash P1,050,000
Receivables 1,124,000
Inventories 2,684,400
Land 4,200,000
Buildings 3,750,200
Accumulated depreciation – buildings ( 3,273,800)
Equipment 1,309,600
Accumulated depreciation – equipment ( 990,700)
Current liabilities ( 822,300)
Bonds payable, 8% due January 1,
2017 ( 2,503,620)
6,527,780
Goodwill from business combination P1,860,670
D
8. Cost of investment:
Sally (100,000 x 40) P4,000,000
Erly (5,000 x 40) 200,000 P4,200,000
Fair value of identifiable net assets
acquired:
Current assets (500,000 + 25,000) P 525,000
Fixed assets, net (4,000,000 +
200,000) 4,200,000
Current liabilities (300,000 + 20,000) ( 320,000)
Long-term debt (1,000,000 + 105,000) ( 1,105,000)
3,300,000
Goodwill from business combination P 900,000 A
9. Cost of investment (80,000 x 12) P 960,000
Fair value of identifiable net assets
acquired:
Current
assets P 560,000
Plant and equipment 1,200,000
Liabilities (
1,012,000) 748,000
Goodwill from business combination P 212,000
Add: Goodwill on the books of U
Corporation 1,000,000
Goodwill to be reflected in the balance sheet P1,212,000
B
10. Fair value of identifiable net assets acquired:
Current assets P 400,000
Property and equipment 1,600,000
Liabilities ( 400,000) P1,600,000
Add: Goodwill from business combination 200,000
Cost of investment P1,800,000
B
11. Cost of investment (200,000 x 40) P8,000,000
Fair value of identifiable net assets
acquired:
Stockholders’ equity of Smith
Company: 7,000,000
Excess allocated to land P1,000,000
Journal entry on the books of Peter to
record the combination:
Other net assets P7,000,000
Land 1,000,000
Common stock (200,000 x 5) P1,000,000
Additional paid-in capital 7,000,000
Total stockholders’ equity of Peters,
Inc., immediately after the business combination:
Common stock, par value P5 per
share; authorized
1,000,000 shares; issued and
outstanding, 800,000 shares P 4,000,000
Additional paid-in capital 13,000,000
Retained earnings 11,000,000
Total P28,000,000
D
12. The building and equipment as well as the land
will be recorded on the books of Mang Pacifico Company at the fair market value
of P1,550,000 and P500,000 respectively.
C
13. Regardless of the amount paid, and whether the
difference between the cost of investment and fair value of identifiable net
assets acquired is positive or negative, the present standard require that
identifiable assets acquired must be recorded at their fair value. Therefore,
the building and equipment will still be recorded at P1,550,000. A
14. Cost of investment:
Fair value of stocks issued (100,000
x 36) P3,600,000
Consultant fee 160,000
P3,760,000
C
15. Capital stock of Dunyain after the business
combination P327,600
Additional paid-in capital of Dunyain
after the business combination 650,800
Total P978,400
Capital stock of Dunyain before the
business combination P218,400
Additional paid-in capital of Dunyain
before the business combination 370,000
Total 588,400
Fair value of stocks issued by Dunyain in
acquiring the Allisap P390,000
Market value per share ÷ 25
Total shares issued P 15,600
C
16. Capital stock of Dunyain after the business
combination P327,600
Capital stock of Dunyain before the
business combination 218,400
Increase in capital stock of Dunyain P109,200
Number of shares issued (refer to no. 17) ÷
15,600
Par value per share of Dunyain P 7 D
17. Cost of investment equal to the fair value of
stock issued P390,000
Fair value of identifiable net assets
acquired (476,000 – 120,000) 356,000
Goodwill from the business combination P 34,000 D
18. Fair value of the bonds:
Present value of maturity value
(300,000 x .6806) P204,180
Present value of interest (300,000 x
9% x 3.9925) 107,798
P311,978
B
19. Average normal earnings:
20x1 P120,000
20x2 140,000
20x3 150,000
20x4 (200,000 – 40,000) 160,000
20x5 180,000
Total P750,000
÷ 5 P150,000
Normal earnings:
Cash and receivables P 150,000
Inventory
200,000
Land 100,000
Buildings and equipment 600,000
Total P1,050,000
x
10% 105,000
Excess earnings P 45,000
Present value of 5 years at 16% risk rate x 3.2743
Estimated fair value of goodwill P147,344
C
20. Average earnings (50,000 + 60,000/2) P55,000
Normal earnings 25,000
Excess earnings P30,000
x 2
Goodwill still to be recognized P60,000
A
21. Minimum market value of shares issued (100,000
x 6) P600,000
Market value of shares, January 1, 20x3
(100,000 x 4) 400,000
Decline the market value of shares issued P200,000
Market value per share January 1, 20x3 ÷ 4
Total shares to be issued 50,000
shares A
22. Additional payment due to increase in net
income must be charged to goodwill.
Goodwill (1,000 x 300) 300,000
Capital stock (1,000 x 100) 100,000
Additional paid-in capital
(1,000 x 200) 200,000 A
23. Same in no. 22, additional payment due to
increase in earning potential must be charged to goodwill.
Goodwill 250,000
Cash 250,000 C
24. Additional payment due to a decline in the
market value of shares issued in acquiring a business must be charged to
additional paid-in capital. (250 – 200) x 9,000 shares = 450,000.
Additional paid-in capital 450,000
Cash 450,000 B
25. Additional payment due to a decline the in the
market price of the stocks issued must be charged to additional paid-in
capital.
Additional paid in capital 450,000
Capital stock (450,000/200 x
100) 225,000
Additional paid-in capital 225,000
OR
Additional
paid-in capital 225,000
Capital stock 225,000 D
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