Case 1 – Computations of GW or IFA 2.

Prepare a schedule for the computation of the fair

NORTHPOINT COMPANY acquired the net assets of value of the net assets.
DOMINI0N ENTERPRISES on January 1, 2020 The
carrying and fair values of DOMINION at the date of 3. Determine goodwill or excess from the business
acquisition follows: combination, and
Carrying 4. Prepare journal entries to record the acquisition of
Value Fair Value the net assets of DOMINION ENTERPRISES in the
Cash P16,000 P16,000 books of NORTHPOINT COMPANY.
Accounts receivable 32,000 32,000
Merchandise Inventory 48,000 56,000 Case 2 – Merger Combination
The following balance sheets at December 31, 2020 are
Plant and Property 360,000 368,000 for PHILRABBIT Company and SUPERLINES Enterprises,
Patent 48,000 44.000 respectively just before the business combination.. On
Total assets P 504,000 P 516,000 this date, PHILRABBIT acquires the net assets of
SUPERLINES and issues 9,600 new shares in
Accounts Payable P24,000 P24,000 consideration thereof. . The issued shares have a market
Long-term debt 320,000 296,000 value of P35 each.
Capital stock 96,000
PHILRABBIT SUPERLINES
Cash P 112,000 P 40,000
APIC 16,000 Accounts receivable 96,000 28,000
Retained Earnings 48,000 Land 176,000 40,000
Total Equities P504f000 Buildings, net 280,000 168,000
Equipment, net 328,000 100,000
NORTHPOINT COMPANY issued the following Total assets P 992,000 P 376,000
considerations in exchange for the net assets of
DOMINION: Accounts payable P 128,000 P 44,000
1. 40,000, P1 par shares of NORTHPOINT. Fair value- Bonds payable 160,000 80,000
P2.75 at January 1, 2020. Share capital, P10 par 320,000 144,000
2. NORTHPOINT agreed to pay additional cash Share premium - 20,000
consideration for the value of any decrease in the Retained profit 384,000 88,000
share price below P2.75 for the 40,000 shares issued. Total liabilities and
The guarantee is for 90 days and is to expire on equity P 992,000 P 376,000
March 31, 2020. NORTHPOINT believes there was
only a 20% chance the price of the shares would fall The following market values have been agreed upon by
to P2.60 during the guarantee period. the parties over some of SUPERLINES’s net asset items:
3. Cash of P72,000; P24,000 to be paid on date of
exchange and the balance in one year's time. The Accounts receivable, P24,000; Land, P48,000; Buildings,
incremental borrowing rate of NORTHPOINT is 10% P200,000; Equipment, P120,000; and
per annum. Bonds payable, P88,000.
4. DOMINION was currently being sued by an enraged
client; the company's lawyers believe there's an 95% PHILRABBIT Company also paid out-of-pocket costs:
chance it will win the case. The expected damages in P6,400 for direct acquisition costs; P12,000 for stock
the event DOMINION lost the case is P200,000. issuance and registration; and P1,600 for indirect
5. An old-model KIA delivery van carried in the books of acquisition expenses.
NORTHPOINT at P40,000, net of P8,000 accumulated
depreciation. The fair value at the date of the Required:
exchange is P28,000. (1) Prepare a schedule for the computation of goodwill or
➢ In addition to the purchase consideration income from combination.
NORTHPOINT had an out-of-pocket costs of
P6,816 for direct acquisition cost; P1,600 for (2) Prepare the necessary journal entries in the books of
issuing and registering the shares; and P1,200 PHILRABBIT Company. The journal entries in the books of
indirect cost. SUPERLINES Enterprises may be ignored.

Required: (3) Prepare the balance sheet of PHILRABBIT Company

1. Prepare a schedule for the determination of the cost just after the merger business combination.
of combination.
MULTIPLE CHOICE

RED LABELCOMPANY issued 96,000 shares of its P25 Fees paid to company accountants 31,120
par common stock for the net assets of BLUEGREEN
CORPORATION in a business combination completed on The goodwill from the business combination is
March1, 2020. BLUEGREEN Corporation’s net assets P334,400.
are worth P3,040,000 at FMV. Out of pocket costs of 1. How much is the FMV per share of RED LABEL
the combination were as follows: COMPANY at March 1, 2020?
a. P 20 c. P 24
Legal fees 20,800 b. P 32 d. P 28
Contingent consideration (probable &
measurable) 14,400 WHITEBOARD COMPANY issued 80,000 shares of P20
Printing costs of stock certificates 6,800 par common stock for all the outstanding stock of
Finder’s fees 21,600 BLACK CORPORATION in a business combination
Professional fees paid to a CPA 16,800 consummated on August 1, 2020. WHITEBOARD
Fees paid to company lawyers 18,760 COMPANY common stock was selling at P30 per share

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at the time the business combination was Book Value Fair Value Book Value Fair
consummated. Out-of-pocket costs of the business Value
combination were as follows: Cash 120,000 120,000 8,000 8,000
Accounts
receivable 120,000 120,000 32,000 32,000
Finder's fee P 40,000 Merchandise
Accountant's fee (advisory) 8,000 inventory 320,000 480,000 80,000 196,000
Legal fees (advisory) 16,000 Building and
Printing costs of stock certificates 4,000 equipment 640,000 696,000 160,000 200,000
SEC registration costs and fees 9,600 Accumulated
Total P 77,600 depreciation (160,000) ( 40,000)
Goodwill ________ _______ 80,000 _______
Total assets P1,040,000 P1,416,000 P320,000 P436,000
2. The acquisition cost of the combination will be:
a. P2,477,600 c. P2,413,600 Accounts
b. P2,464,000 d. P2,400,000 payable 80,000 80,000 112,000 112,000
Bonds
BLACKBELT COMPANY issues 400,000 shares of its own payable 320,000 352,000 48,000 68,000
P1 par common stock for the net assets of Common
YELLOWTOWN CORPORATION in a merger stock – P 10 P5 par
consummated on July 1, 2020. On this date, par 240,000 80,000
Additional
BLACKBELT stock is quoted at P10 per share. Balance
paid- in
sheet data for the two companies at July 1, 2020, just capital 80,000 16,000
before combination, are as follows: Retained
earnings 320,000 64,000
BLACKBELT YELLOWTOWN Total Liab. &
Current Assets P14,400,000 P1,200,000 SHE P 1,040,000 P320,000
Plant Assets 17,600,000 5,200,000
Total Assets P32,000,000 P6,400,000 GREYHOUND COMPANY acquired the net assets of
VIOLET COMPANY by issuing 8,000 shares of stocks.
Liabilities P9,600,000 P1,600,000 Additional cash payments made by GREYHOUND
Common stock, P10 16,000,000 2,400,000 CORPORATION in completing the acquisition were:
par
Additional paid-in 2,400,000 800,000 Broker’s fee paid to firm that located
capital VIOLET CORP. P8,000
Retained earnings 4,000,000 1,600,000 Cost to register and issue stocks 32,000
Total equities P32,000,000 P6,400,000 Professional fees paid to accountants 16,000
Professional fees paid to lawyers 16,000
BLACKBELT COMPANY also paid finder’s fees of P40,000 Professional fees paid to official valuers 16,000
and legal fees of P8,000; as well as indirect expenses of Indirect acquisition cost 12,000
32,000.
3. The retained earnings on the combined balance 5. Assuming the stocks issued by GREYHOUND
sheet after the combination will be: COMPANY has a market price of P40, how much is
a. P3,968,000 c. P3,920,000 the total assets after the business combination?
b. P4,720,000 d. P5,600,000 a. P 1,376,000 c. P 1,496,000
b. P 1,440,000 d. P 916,000
PURPLE HEART COMPANY. is to acquire BROWN
CORPORATION by absorbing all the assets and KING COMPANY issued 96,000 shares of P25 par
assuming all the liabilities of the latter company, in ordinary shares for all the outstanding stock of FISHER
exchange for shares of stocks of the former. Below are CORPORATION in a business combination consummated
the balance sheets of the two companies with the on July 1, 2020. King’s ordinary shares were selling at
corresponding appraised value increment for Brown. P40 per share at the time of consummation of the
Parties agree to use the appraised values against which combination. In addition cash payment of P160,000 was
the fair market value of the shares will be matched. made and a deferred cash payment of P1,200,000
payable on July 1, 2021. Market rate of interest is 12%.
PURPLEHEART BROWN FISHER’s net assets are P3.04 million at book value.
Assets per books P3,200,000 P2,000,000 Out of pocket costs of the combination were as follows:
Asset increase per 240,000 Legal and accounting fees related with the issuance of
appraisal shares, P9,600 and printing cost of stock certificates,
Liabilities 1,200,000 640,000 P7,520. A contingent consideration which is probable
Capital stock (no par) (P100 par) and can be reasonably estimated amounted to P40,160.
1,600,000 800,000
APIC 560,000 240,000 6. What is the total cost of the investment?
Retained earnings (deficit) (160,000) 320,000 a. P5,111,588 c. P5,586,947
Total Equities P3,200,000 P2,000,000 b. P7,187,091 d. P6,711,718

4. The stocks of PURPLE COMPANY is currently selling A, B, C, and D are companies to be combined just prior
at P100 per share. The number of shares to be to the combination, their individual stockholder’s equity
issued to BROWN by PURPLE is consists of the following balances:
a. 16,000 c. 10,400
b. 13,600 d. 8,000 A B C D
Ordinary P480,000 P96,000 P360,000 P120,000
The following balance sheets were prepared for shares
GREYHOUND COMPANY and VIOLET CORPORATION on Share 120,000 48,000 36,000
January 1, 2020, just before they entered into a premium
business combination. Retained 144,000 72,000 216,000 36,000
G/HOUND COMPANY VIOLET CORP. Earnings

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 7. How much goodwill is to be recognized assuming
Company A is the surviving entity. It issued 16,000, that the net assets are fairly valued?
P69 par value ordinary shares, with a fair value per a. P676,000 c. P388,000
share of P91; dispersed to the stockholders of the b. P438,400 d. P352,000
acquired companies.

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