ACCOUNTING 315 QUIZ

NAME ______________________________ CLASS TIME________________ DATE______________

INSTRUCTIONS: Answer the following problems. Present supporting computation with proper label.
Correct answer without solution will not be given any credit points.

Problem 1
The Statement of Financial Position of JM Company on October 31, 2019 was as follows:

JM Company
Statement of Financial Position
October 31, 2019

Cash 60,000
Other current assets 420,000
Plant assets (net) 920,000
Total assets 1,400,000
======
Accounts payable 180,000
Mortgage payable 250,000
Ordinary share, P5 par 200,000
Paid-in capital in excess of par 320,000
Retained earnings 450,000
Total liabilities & shareholders’ equity 1,400,000
======
An independent appraiser established the following fair market values for JM Company’s identifiable net
assets other than cash:

Other current assets 500,000

Plant assets (net) 1,000,000

Accordingly, On October 31, 2019, Justine Corporation issued 100,000 ordinary shares with P10 par (P13
fair market value) for the net assets of JM Company in a business combination qualifying for purchase
accounting. Also on October 31, 2019, Justine Corporation paid direct acquisition cost of P30,000.

Required:
1. Prepare the journal entries to record the transactions on the books of Justine Corporation on Oct.
31, 2019. (6 pts.)
2. Prepare the journal entries to record the transactions on the books of JM Company on October
31, 2019. (6 pts.)
3. How much is goodwill or (gain on acquisition) arising from the business combination?(2 pts.)
______________
4. How much is the increase in total assets of Justine Corporation after the combination? (2 pts.)
______________
5. How much is the fair market value of the net assets of JM Company at the time of the business
combination? (2 pts.) ________________
Problem 2
On Dec. 31, 2019, Mason Company was merged into Saxon Corporation. Both companies used the same
accounting principles for assets, liabilities, revenue and expenses and both had a Dec. 31, fiscal year.
Saxon issued 150,000 ordinary shares with P10 par (current fair value of P25 a share) for the net assets
of Mason. In addition, Saxon Corporation paid the following out-of-pocket costs associated with the
business combination:
CPA audit fees 60,000
Legal fees 50,000
Finder’s fee 56,250
Printer’s charges for printing securities and SEC registration fee 23,000

Immediately prior to the merger, Mason Company’s condensed statement of financial position was as
follows:

Mason Company
Statement of Financial Position
December 31, 2019

Current assets 1,000,000

Plant assets (net) 3,000,000
Other assets 600,000
Patent 200,000
Total assets 4,800,000
======

Accounts payable 500,000

Bonds payable 1,000,000
Ordinary share, P10 par 1,000,000
Additional paid-in capital 700,000
Retained earnings 1,600,000
Total liabilities & stockholders’ equity 4,800,000
======
The board of directors of Saxon Corp. determined the current fair values of Mason Company’s identifiable
assets and liabilities as follows:
Current assets 1,150,000
Plant assets 3,400,000
Bonds payable 950,000

Required:
1. Prepare the journal entries to record the business combination on the books of Saxon
Corporation. (6 pts.)
2. Prepare the journal entries to record the transactions above on the books of Mason Company. (6
pts.)
3. Compute the amount of goodwill or (gain of acquisition) as a result of the combination.
_______________ (2 pts.)
4. How much is the increase in total liabilities of Saxon Corporation after the business combination?
_______________ (2 pts.)
5. How much is the increase in total shareholders’ equity of Saxon after the business combination?
_______________ (2 pts.)
Problem 3
The Sleepy Corp. acquired the net assets of Baldy Co. for P1,100,000 cash. The assets of Baldy have a
book value of P1,200,000 and a fair market value of P1,300,000; its liabilities are P250,000.

Questions:
1. How much is the cost of combination? _________________ (2 pts.)
2. How much is goodwill or (gain on acquisition)? ________________ (2 pts.)

Problem 4
On January 1, 2020, Swine Corp. issued 200,000 shares of P10 par value ordinary share in exchange for
all of the ordinary share of Quiet Corp. Immediately before this business combination, Swine’s
shareholders’ equity was P6,000,000 and Quiet’s shareholders’ equity was P2,000,000. On Jan. 1, 2020,
the fair market value of Swine’s ordinary share was P20 per share and the fair market value of Quiet’s net
assets was P4,000,000.

Required:
1. Compute the cost of combination. ________________ (2 pts.)
2. Compute the amount of goodwill or (gain on acquisition). _______________ (2 pts.)