ACQUISITION OF STOCKS

1. On January 2, 2012, Art Corporation purchased 85% of the outstanding ordinary shares of Work Company for P
4,200,000 payable in cash. On that date, the assets and liabilities of Work Company had fair market values as
indicated below. Statement of Financial Position of the companies on January 2, 2012 are also indicated below. The
non controlling interest is measured at fair value.

Work
Art Book Value Fair Value
Assets
Cash P 525,000 P 525,000 P 525,000
Receivables 1,050,000 787,500 787,500
Inventories 787,500 682,500 735,000
Land 262,500 420,000 630,000
Building, net 1,575,000 1,050,000 945,000
Long-term investment in MS 525,000 656,250 735,000
Investment in Work Co. 4,200,000_ ___________
Total P 8,925,000 P 4,121,250

Liabilities and SHE

Accounts payable P 2,273,250 P 603,750 P 603,750
Ordinary shares-Art Company 2,100,000
Ordinary shares-Work Company 1,050,000
Additional paid in capital-Art 1,050,000
Retained Earnings-Art Company 3,501,750
Retained Earnings-Work Company __________ 2,467,500
Total P 8,925,000 P 4,121,250

Required: Prepare journal entries on the books of Art Company. Prepare the determination and allocation of excess
schedule to compute for goodwill/income from acquisition. Prepare working paper entries.

Assuming the following information:

Price paid Interest Liabilities of Art FMV of NCI
A. P 3,780,000 90% P 1,853,250 P 475,500
B. P 4,725,000 75% P 2,798,250 P 787,500
C. P 2,625,000 80% P 698,250 P 630,000

2. On January 2, 2012, the Statement of Financial Position of Pepper and Steak Company prior to the combination
are:
Pepper Co. Steak Co.
Cash P 450,000 P 15,000
Inventories 300,000 30,000
Property and Equipment, net 750,000 105,000
Total Assets P 1,500,000 P 150,000
========== =========
Current Liabilities P 90,000 P 15,000
Common Stocks, P 100 par 150,000 15,000
Additional paid in capital 450,000 30,000
Retained Earnings 810,000 90,000
Total Liabilities and SHE P 1,500,000 P 150,000
========== =========
The fair value of Steak Company’s equipment is P 153,000.
Assume the following independent cases;

A. Assuming Pepper Company acquired all of the outstanding stock of Steak Company resulting to a goodwill of P
66,000, contingent consideration is P 36,000, how much is the price paid to Steak Company’s stock?
a. P 249,000 c. P 213,000
b. P 315,000 d. P 285,000

B. Assuming Pepper Company acquired 70% of the outstanding common stock of Steak Company for P 105,000 and
Non-controlling interest is measured at fair value of P 61,000. How much is the goodwill (gain on acquisition)?
a. P (17,000) c. P 23,100
b. P 17,000 d. P (23,100)

C. Assuming Pepper Company acquired 80% of the outstanding common stock of Steak Company for P 136,800 and
Non-controlling interest is measured at Non-controlling interest’s proportionate share of Steak Company’s
identifiable net assets. How much is the consolidated stockholder’s equity on the date of acquisition?
a. P 1,410,000 c. P 1,446,600
b. P 1,419,600 d. P 1,456,200

D. Assuming Pepper Company acquired 90% of the outstanding common stock of Steak Company for P 243,000 and
Non-controlling interest is measured at fair value, how much is the total consolidated assets on the date of
acquisition?
a. P 1,542,000 c. P 1,737,000
b. P 1,785,000 d. P 1,494,000

3. Blue Company purchased a 10% interest in Soda Company on January 2, 2007, as an available for sale investment
for a price of P 200,000. On January 2, 2012, Blue purchases 17,500 additional shares of Soda from existing
shareholders for P 1,575,000. The purchase raised Blue’s interest to 80%. Soda Company had the following statement
of financial position just prior to Blue’s second purchase:

ASSETS LIABILITIES & EQUITY

Current Assets P 825,000 Liabilities P 325,000
Land and Building, net 700,000 Common Stock, P20 par 500,000
Equipment, net 500,000 Retained Earnings 1,200,000
Total Assets P 2,025,000 P 2,025,000
======== =========

On the date of the second purchase, Blue determines that Soda’s equipment was undervalued by P 250,000 and had
a 5-year remaining life. All other book values approximate fair values. Any remaining excess is attributed to goodwill.
I. What is the estimated fair value of the 20% non-controlling on January 2, 2012?
a. P 475,000 c. P 450,000
b. P 221,875 d. P 170,000

II. What is the amount of goodwill to be reported in the consolidated Statement of Financial Position on January 2,
2012?
a. P 275,000 c. P 300,000
b. P 150,000 d. P 134,125