BUSINESS COMBINATION (2)

01. Fay acquires assets and liabilities of May Company on January 1, 2022. To obtain these
shares, Fay pays P400,000 and issues 10,000 shares of P20 par value ordinary shares on
this date. Fay’s shares had a fair value of P36 per share on that date. Fay also pays
P15,000 to a local investment firm for arranging the transaction. An additional P10,000
was paid by Fay in stock issuance costs.

The book values of Fay’s accounts and the book and fair values of May’s accounts as of
January 1 follow:
May Company
Fay, Inc. Book Value Fair Value
Cash P 900,000 P 80,000 P 80,000
Receivables 480,000 180,000 160,000
Inventory 660,000 260,000 300,000
Land 300,000 120,000 130,000
Building (net) 1,200,000 220,000 280,000
Equipment (net) 360,000 100,000 75,000
Trademarks - - 40,000
Accounts payable 480,000 60,000 60,000
Long-term liabilities 1,140,000 340,000 300,000
Ordinary shares 1,200,000 80,000
Retained earnings 1,080,000 480,000

Assuming the combination is accounted for as acquisition, immediately after the acquisition,
in the statement of financial position of Fay, what amount will be reported for goodwill?
a. P55,000 b. P65,000 c. P70,000 d. P135,000

02. Using the same information in no. 1, what amount will be reported for receivables?
a. P660,000 b. P640,000 c. P500,000 d. P460,000

03. Using the same information in no. 1, what amount will be reported for long-term liabilities?
a. P1,480,000 b. P1,440,000 c. P1,180,000 d. P1,100,000

04. Using the same information in no. 1, what amount will be reported for ordinary shares?
a. P1,200,000 b. P1,280,000 c. P1,400,000 d. P1,480,000

05. Using the same information in no. 1, what amount will be reported for retained earnings?
a. P1,065,000 b. P1,080,000 c. P1,525,000 d. P1,560,000

06. Using the same information in no.1, what amount will be reported for share premium?
a. P165,000 b. P150,000 c. P160,000 d. P175,000

07. Using the same information in no.1, what amount will be reported for cash after the purchase
transaction?
a. P980,000 b. P900,000 c. P875,000 d. P555,000

08. Zyxel Corporation acquired all the assets and liabilities of Globe Tattoo Corporation by issuing its
ordinary shares on January 1, 2022. The statement of financial position data for the companies
prior to the business combination and immediately following the combination is provided:

Zyxel Globe After

Book Value Book Value Combination
Cash P 65,000 P 25,000 P 90,000
Accounts receivable 72,000 20,000 94,000
Inventory 33,000 45,000 88,000
Building/Equipment (net) 400,000 150,000 650,000
Goodwill - - ?
Total Assets P570,000 P240,000 P ?
======= ======= =======
 Accounts payable P 50,000 P 25,000 P 75,000
Bonds payable 250,000 100,000 350,000
Ordinary share, P2 par 100,000 25,000 160,000
Share premium 65,000 20,000 245,000
Retained earnings 105,000 70,000 ?
Total liabilities and equities P570,000 P240,000 P ?
======= ======= ======

How many number of shares did Zyxel issue for the acquisition of Globe?
a. 80,000 b. 50,000 c. 30,000 d. 17,500

09. What was the fair value of Zyxel’s stock when these were issued for acquisition of Globe?
a. P2.00 b. P5.63 c. P6.00 d. P8.00

10. What was the fair value of the net assets held by Globe at the time of combination?
a. P115,000 b. P227,000 c. P270,000 d. P497,000

11. What amount of goodwill will be reported by the combined entity immediately following the
combination?
a. P13,000 b. P125,000 c. P173,000 d. P413,000

12. What balance in retained earnings will the combined entity report immediately following the
combination?
a. P35,000 b. P70,000 c. P105,000 d. P175,000

13. On January 2, 2022, Power, Inc. acquired 80% of the outstanding shares of Sigh Company
for P1,952,000 cash. At the time of acquisition, the shareholders’ equity section of the two
companies is shows below:
Power, Inc Sigh Company
Ordinary shares P 4,000,000 P1,600,000
Share premium 3,000,000 480,000
Retained earnings 6,840,000 420,000
Total P13,840,000 P2,500,000
========= ========

Assuming NCI is measured at its implied value, what is the shareholders’ equity on the
consolidated statements of financial position on January 2, 2022?
a. P13,840,000 b. P14,328,000 c. P17,260,000 d. P15,440,000

14. Pull Company acquires a controlling interest in Solar Corporation in the open market for
P120,000. The P100 par value stock of Solar Corporation at the date of acquisition is
P125,000 and its retained earnings amounts to P50,000. The market value of Solar
Corporation is P120 per share. In the consolidated statement of financial position on the
date of acquisition, non-controlling interest would show a balance of:
a. P40,000 b. P35,000 c. P17,500 d. P30,000

15. On December 31, 2021, Pyrex Corporation purchased 80% of the outstanding ordinary shares
of Simplex Company for P395,000 cash. The condensed statement of financial position of
Simplex Company as of the date of the purchase is shown below:

Assets Liabilities & Equity

Cash P150,000 Liabilities P400,000
Inventories 250,000 Ordinary shares, P1 par value 50,000
Property and equipment (net) 450,000 Share premium 100,000
Retained Earnings 300,000
Total P850,000 Total P850,000
======= =======
 On December 31, 2021, the inventories and property and equipment of Simplex had a fair
values
of P275,000 and P500,000 respectively. The fair value of NCI on December 31, 2021 was
P100,000. How much goodwill (gain on acquisition) must be shown in the consolidated
statement of financial position of Pyrex and its subsidiary on December 31, 2021?
a. (P30,000) b. P30,000 c. (P25,000) d. P25,000