ACCOUNTING 315 – QUIZ BUSINESS COMBINATION

NAME ___________________________ CLASS TIME _____________ DATE _________

Instructions: Solve the following problems. Show supporting computation with proper label.

Problem A
A merger was effected on June 1 whereby the Corona Corporation took over the assets and
assumed the liabilities of the Dino Company by paying P102,000 cash. A Statement of Financial
Position for the Corona Corporation just prior to the merger shows the following:

Cash, receivables, Current liabilities 105,000

inventories 365,000 Long-term debt 180,000
Investments 120,000 Preference shares, P100 par 100,000
Plant & equipment 400,000 Ordinary shares, P5 par 250,000
Goodwill & other Paid-in capital in excess of par 90,000
intangibles 100,000 Retained earnings 260,000
Total assets 985,000 Total liabilities & SHE 985,000
====== ======

The Dino Company’s Statement of Financial Position consists of the following:

Cash, receivable, Current liabilities 40,000

Inventories 80,800 Long-term debt 60,000
Plant and equipment (net) 150,000 Ordinary shares, P5 par 110,000
Goodwill 40,000 Paid-in capital in excess of par 30,000
Appraisal capital 50,000
Deficit (19,200)

Total assets 270,800 Total Liabilities & SHE 270,800

====== ======

The Corona Corporation records the assets of the Dino Company at appraised values as follows:
cash, receivables, and inventories, P55,000; plant and equipment, P122,000. Liabilities are
understated by certain accrued items totaling P2,200. The stock of the Corona Corporation is
selling at P12 per share while the stock of Dino Company is selling at P15 per share. Corona
Corporation paid P10,000 to the lawyer who helped in the merger process.

Required:
1. Give the entries that would appear on the books of the Corona Corporation as a result of the
merger. (5 pts.)
2. Give the entries on the books of Dino Company. (5 pts.)
3. Compute the amount of the following on the books of Corona Corporation after the merger.
(3 pts. each)
a. Total assets _________________
 b. Total liabilities _________________
c. Total shareholders’ equity _______________

Problem B
Ayala Co., Bear Co., and Cola Co., agree to consolidate. The new corporation, ABC Corporation, will issue
5% fully participating preference shares and ordinary shares, both with a P10 par value.

Ayala Bear Cola

Asset contribution 800,000 1,600,000 1,600,000
Annual earnings 72,000 160,000 192,000

Earnings are to be capitalized at 8% in determining the total shares to be issued by ABC Corporation.
ABC Corporation will issue preference shares for the assets transferred and ordinary shares for the
difference between the total shares that each company is entitled to and the preference shares received.

How many ordinary shares will be distributed to each company? (3 pts. each)

Ayala ___________________ Bear ______________________ Cola ___________________

Problem C
On July 1, 2020, the balance sheets of Calm Co. and Peace Co. are as follows:

Calm Co. Peace Co.

Assets 4,000,000 2,500,000
Liabilities 1,500,000 800,000
Share capital, no par 2,000,000
Share capital, P100 par 1,000,000
Additional paid-in capital 700,000 300,000
Retained earnings (deficit) ( 200,000) 400,000

Calm Co., on this date, agreed to acquire all the net assets and assume all the liabilities of Peace Co. in
exchange for the shares of stock that it will issue. The stock of Calm Co. is selling in the market at P50
per share. The assets of Peace Co. are to be appraised, and Calm Co. is to issue shares of its stock with
a market value equal to that of the net assets transferred by Peace Co. The value of the assets of Peace
Co., per appraisal, is increased by P300,000.

Required: (3 pts. each)

1. How many shares of stock will be issued by Calm Co. to acquire the net assets of Peace Co.?
_______________

2. How much is the increase in the net assets of Calm Co. after the combination? ________________

Problem D
On January 2, 2020, True Inc. acquired all the outstanding shares of Promise Co. for P3,420,000 cash.
At the time of the acquisition, the shareholders’ equity section of the statement of financial position of
the two companies registered as follows:

True Inc. Promise Co.

Ordinary share 4,000,000 1,600,000
Additional paid-in capital 3,000,000 480,000
Retained earnings 6,840,000 360,000

How much is goodwill arising from the acquisition? (3 pts.) _________________________

Problem E
Pine Corporation acquired the net identifiable assets of Sweet Corporation on December 31, 2012. Pine
Corp. pays P4,500,000 for the assets and liabilities of Sweet Co and Sweet Co. will be dissolved. In
addition, Pine Corp. paid the following costs associated with the business combination:

Professional fees P150,000

General administrative costs 15,000

Before the acquisition, Sweet Company’s balance sheet showed the following balances:

Current assets 1,950,000

Property and equipment (net) 1,650,000
Other assets 150,000
Current liabilities 450,000
Other liabilities 150,000
Share capital, P100 par value 1,500,000
Additional paid-in capital 750,000
Retained earnings 900,000

The board of directors of Pine Corp. determined the current fair values of Sweet Company’s identifiable
assets and liabilities as follows:

Current assets 1,965,000

Property and equipment 2,850,000
Other assets 300,000
Current liabilities 300,000
Other liabilities 240,000

Required:
1. Prepare all entries to record the combination on the books of Pine Corporation. (5 pts.)

2. How much is the increase in the current asset of Pine Corp.? (3 pts.) __________________

3. Non-current assets of Pine Corp. increased by _____________________. (3 pts.)

4. Prepare all entries on the books of Sweet Company. (5 pts.)