COLLEGE OF BUSINESS AND ACCOUNTANCY

Discussion Problem no. 1

       The illustration will involve the acquisition of net assets with cash and the issuance of
shares as a means of payment.
Paul Simon  
Book Fair Book  Fair
Value Value Value Value
Assets------ P600,000 P 650,000 P176,000  P218,000
Liabilities-----  P240,000 P180,000     P60,000 P 58,000 
 Stockholders/Shareholders'Equity:          
 Common stock/Ordinary Shares 
200,000  50,000
(20 Par x 10,000 shares = 200K ) & (10 Par x      
5,000 shares = 50k)
 Retained earnings/Accumulated profit or loss 160,000       66,000  
 Total Liabilities and Equities P 600,000     P176,000   

Assume that on January 1, 2019, Paul Company pays P100,000 in cash and issued 3,600
common stock (ordinary shares) with a fair value of P25 per share to Simon Corporation
for all the net assets of that company, and that no other direct costs are involved. Because
cash and stock are the means of payment, 

Required:

1. Determine the acquirer and  acquiree

2. Determine the Acquisition date
3. Compute for goodwill or gain on bargain purchase
4. Prepare the journal entry of the acquirer to record the acquisition.
5. Prepare the journal entry of the acquiree to record the sale of its assets and liabilities (or
net assets).
6. Prepare the acquirer Balance sheet(Statement of Financial Position) after the business
combination.
7. Prepare the acquiree Balance sheet(Statement of Financial Position) immediately after
the sale of all of its net assets.

SUGGESTED SOLUTION:

1. Determine the acquirer and  acquiree

- The acquirer would be Paul Company while the acquiree would be Simon Company.

2 Determine the Acquisition date.

 - Acquisition Date: January 1, 2019

3. Compute for goodwill or gain on bargain purchase

Cash P100,000
Add: Common stock (3,600 shares *25) 90,000
Total Consideration Transferred 190,000
Less: FV of Identifiable Assets Acquired and Liabilities assumed - Simon
Assets, net 218,000
Liabilities (58,000) 160,000
Goodwill 30,000

4. Prepare the journal entry of the acquirer to record the acquisition.

Asset 218,000
Goodwill 30,000
Liabilities 58,000
Cash 100,000
Ordinary Shares, 20 par (3,600*20) 72,000
Share Premium (3,600*5) 18,000
#

5. Prepare the journal entry of the acquiree to record the sale of its assets and liabilities (or net assets).

Cash 100,000
Investments in common stock/ ordinary shares paul 90,000
Liabilities 60,000
Asset 176,000
Gain on Sale of Assets and Liabilities 74,000
#

6. Prepare the acquirer Balance sheet(Statement of Financial Position) after the businesscombination.

Paul Company
Statement of Financial Position
As of January 1, 2019

Assets

Assets (600k + 218k - 100k) P718,000

Goodwill 30,000
Total Assets P748,000

Liabilities and Stockholders’ Equity

Liabilities (240k + 58k) P298,000

Stockholders’ Equity
Share Capital, 20 par (200k + 72k) 272,000
 Share Premium 18,000
Retained Earnings 160,000
Total Stockholders’ Equity 450,000

Total Liabilities and Stockholders’ Equity P748,000

7. Prepare the acquiree Balance sheet(Statement of Financial Position) immediately after the sale of all
of its net assets.

Simon Company
Statement of Financial Position
As of January 1, 2019

Assets
Cash P 100,000
Investment in common Stock/ordinary shares – Paul 90,000
Total Assets P 190,000

Liabilities and Shareholders’ Equity

Liabilities 0
Total Liabilities 0

Shareholders’ Equity (
Common shares/Ordinary shares, P10 par P 50,000
Retained Earnings/Accumulated profit or loss (66,000+74,000) 140,000
Total Shareholders’ Equity 190,000

Total Liabilities and Shareholders’ Equity P 190,000