BUSINESS COMBINATION
ACQUISITION OF NET ASSETS
1. On January 1, 2012, Marks Company purchased the net assets of Spencer Company by paying P 850,000 cash and issuing shares of stocks at P 3,110,000 fair market value. Book value and fair value data on the Statement of Financial Position on January 1, 2012 are as follows:
Marks Company
Spencer Company
Book Value
Fair Value
Book Value
Fair Value
Cash
P 4,600,000
P 4,600,000
P 300,000
P 300,000
Accounts Receivable
1,000,000
1,000,000
980,000
980,000
Inventory
1,500,000
1,300,000
710,000
600,000
Building & Equipment, net 1,800,000
1,460,000
1,520,000
1,064,000
Goodwill
- -
90,000 80,000
TOTAL ASSETS
8,900,000
8,360,000
3,600,000
3,024,000
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Liabilities
P 1,000,000
P 1,000,000
P 570,000
P 570,000
Capital Stock
1,600,000
600,000
Additional paid in capital
900,000
960,000
Retained Earnings
5,400,000 1,470,000_ TOTAL LIAB & SHE
8,900,000
3,600,000
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Marks incurred and paid legal and brokerage fees of P 25,000 for business combination; stocks issuance cost of P 23,000 and Pn 12,000 indirect acquisition costs. It is determinable that contingency fee of P 11,800 would be paid within the year.
I. Total assets after the business combination
a. P 11,991,200
c. P 12,531,200
b. P 13,381,200
d. P 12,351,200
II. Stockholders’ equity after the business combination
a. P 7,900,000
c. P 10,937,600
b. P 11,010,000 d. P 10,949,400
2. A condensed Statement of Financial Position at August 31, 2012 and related current fair value data for Apple Company are presented below;
Apple Company
Statement of Financial Position
August 31, 2012
Carrying Amount
Fair Value
Assets:
Current assets
P 368,000
P 404,000
Plant assets
592,000
690,000
Patent, net
58,500__
48,000
Total Assets
1,019,000
Liabilities & SHE:
Current liabilities
P 107,500
P 107,000
Long term debt
280,000
297,500
Capital stock, P 20 par
210,000
Retained earnings
421,500__
Total Liabilities and SHE
1,019,000
On September 1, 2012, Eve Corporation issued 10,700 shares of its P 24 par value common stocks (current fair value P 33 per share) and P 145,000 cash for the net assets of Apple Company. Of the P 47,500 out of pocket costs paid by Eve on September 1, 2012, P 26,500 were indirect costs and the remainder were legal fees and finder’s fees related to the business combination.
I. How much is the net increase in the stockholders equity in the books of the surviving company as a result of the business combination?
a. P 592,000
c. P 518,500
b. P 545,000
d. P 496,200
3. The following are the Statement of Financial Position of Top and Shop Corporation as of December 31, 2011:
Top
Shop
Cash
P 150,000
P 10,000
Receivable
35,000
7,500
Inventories
40,000
12,500
Land
37,500
50,000
Building, net
110,000
50,000
Equipment, net
75,000_ 120,000_
Total Assets
P 447,500
P 250,000
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Accounts payable
P 92,500
P 30,000
Ordinary shares, P 10 par
250,000
100,000
Share premium
25,000
70,000
Retained Earnings
80,000_
50,000_
Total Liabilities & SHE
P 447,500
P 250,000
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Top decided to acquire the net assets of Shop on January 1, 2012. Top will issue 9,500 ordinary shares with market value of P 17 per share and cash purchase price of P 14,000, Shop will be dissolved. The book values reflect fair values except for building of Top, which has a net realizable of P 21,000 and P 64,000 respectively. Top also paid for the cost of registering and issuing securities amounting to P 7,500, direct costs of combination amounting to P 11,000 and indirect costs amounting to P 5,000.
I. How much is the total assets after the combination?
a. P 720,000
c. P 722,000
b. P 706,000
d. P 682,500
II. How much is the total shareholders’ equity after the combination?
a. P 516,000
c. P 560,000
b. P 509,000
d. P 493,000