PRACTICAL APPLICATION 42 ITEMS

PROBLEM 1 21items

Because of the poor performance of the L.A Lakers in the 2019-2020 NBA season, Houston
Rockets decided to bought the L.A Lakers company on January 1, 2021. L.A Lakers was able to
negotiate that Houston Rockets will pay the following consideration, Cash amounting to P300,000;
issuance of ordinary common stock amounting to P80,000 at book value; and issuance of
P30,000 Notes payable.

Direct cost has been incurred in accordance with the acquisition process:
Audit Expenses P7,500
Valuation Expenses P2,000
Issuance of Stock P5,000
Issuance of Notes Payable P5,500
Other necessary expenses for the Issuance of Stock P300

Below is the Statement of Financial Position of L.A Lakers on December 31, 2020 at book value
and at fair value.
Fair Value Book Value
Cash 100,000 90,000
Receivables 150,000 160,000
Inventory 70,000 65,000
PPE 200,000 165,000
Payables 150,000 110,000
APIC 50,000 50,000
Retained Earnings 100,00 100,000
Common Stock at P5 145,000 145,000

One of the income summaries of L.A Lakers has not been adjusted or closed yet to its necessary
account, it shows a normal balance of P75,000 for the 2020 Financial Performance of the
company.

Below is the Statement of Financial Position of Houston Rockets on the date of acquisition at
book value and at fair value.
Fair Value Book Value
Cash 450,000 450,000
Receivables 150,000 100,000
Inventory 70,000 65,000
PPE 150,000 165,000
Payables 150,000 110,000
APIC 5,000 5,000
Retained Earnings 365,000 365,000
Common Stock at P10 300,000 300,000

The market value of common stock on the date of acquisition is P10 and P12 for L.A Lakers and
Houston Rockets respectively.

Based on the problem above compute for the following questions:

PRESENT YOUR SOLUTIONS PROPERLY WITH THE FINAL ANSWER IN A SEPARATE
ANSWER SHEET

WITH CORRECT ANSWER BUT NO SOLUTIONS = NO POINTS

WITH SOLUTIONS BUT NO CORRECT ANSWER = NO POINTS
WITH SOLUTIONS AND CORRECT ANSWER = COMPLETE POINTS

ERASURE WILL BE A 1PT DEDUCTION

1. What is the result of the business combination Goodwill or Gain? And how much? 2pts
2. How much is the total expense to be debited to APIC? 1pt
3. How much is the total expense to be debited to Retained Earnings? 1pt
4. How much is the total expense to be debited to Cash? 1pt
5. How much is the portion of expenses that APIC cannot be absorbed? 1pt
6. What is the consolidated APIC? 3pts
7. What is the consolidated Retained Earnings? 3pts
8. What is the consolidated Cash? 3pts
9. What is the consolidated Asset? 2pts
10. What is the consolidated Liability? 2pts
11. What is the consolidated common stock? 2pt

PROBLEM 1 21items

Manila Bay Company sold itself to White Sand company because of its unpopularity as tourist
spots in town. White Sand company is just a newly established company, that’s why instead of
paying cash it issued a 20,000 common stock to acquire Manila Bay.

The total assets at book value is P500,000 and P550,000 for Manila Bay and White Sand
respectively and the total liabilities at book value is P350,000 and P200,000 for Manila Bay and
White Sand respectively.

The total assets at fair value is P550,000 and P750,000 for Manila Bay and White Sand
respectively and the total liabilities at fair value is P400,000 and P400,000 for Manila Bay and
White Sand respectively.

Out of the total assets cash of Manila Bay at fair value is P35,000 and Cash of White Sand at
Book Value is P50,000

Equity Components are;

APIC P20,000, Retained earnings, P30,000 and Common Stock P5 P100,000;
APIC P70,000, Retained earnings, P130,000 and Common Stock P5 P150,000 for Manila Bay
and White Sand respectively

The following expenses were incurred for the acquisition process:

General administrative expense P20,000
Stock issuance cost P15,000

The market value of common stock on the date of acquisition is P6 and P7 for Manila Bay and
White Sand respectively.
Based on the problem above compute for the following questions:

PRESENT YOUR SOLUTIONS PROPERLY WITH THE FINAL ANSWER IN A SEPARATE

ANSWER SHEET

WITH CORRECT ANSWER BUT NO SOLUTIONS = NO POINTS

WITH SOLUTIONS BUT NO CORRECT ANSWER = NO POINTS
WITH SOLUTIONS AND CORRECT ANSWER = COMPLETE POINTS

ERASURE WILL BE A 1PT DEDUCTION

1. What is the result of the business combination Goodwill or Gain? And how much? 2pts
2. How much is the total expense to be debited to APIC? 1pt
3. How much is the total expense to be debited to Retained Earnings? 1pt
4. How much is the total expense to be credited to Cash? 1pt
5. How much is the portion of expenses that APIC cannot be absorbed? 1pt
6. What is the consolidated APIC? 3pts
7. What is the consolidated Retained Earnings? 3pts
8. What is the consolidated Cash? 3pts
9. What is the consolidated Asset? 2pts
10. What is the consolidated Liability? 2pts
11. What is the consolidated common stock? 2pt