Chapter 13 – Business Combinations Page 1 of 5

PROBLEM 13-1

1. Record the acquisition on Big Corporation’s books. Provide support for your entry as
needed.
Books of Big Corporation
(a) To record acquisition of net assets of Small:
Accounts receivable 120,000
Inventories 140,000
Property, plant and equipment 300,000
Current liabilities 50,000
Gain on acquisition 10,000
Cash 500,000

(b) To record acquisition-related costs:

Acquisition expense 5,000
Cash 5,000

Computation of Income from Acquisition:

Price paid P500,000
Less: Fair value of net identifiable assets acquired:
Accounts receivable P120,000
Inventories 140,000
Property, plant and equipment 300,000
Current liabilities ( 50,000) 510,000
Gain on acquisition P( 10,000)

2. Record the sale on the books of Small Corporation and the subsequent total liquidation of
the corporation.
Books of Small Corporation
(a) To record the sale of net assets to Big:
Cash 500,000
Current liabilities 50,000
Accounts receivable 120,000
Inventories 100,000
Property, plant and equipment 280,000
Gain on sale of business 50,000*
*RE

(b) To record liquidation of the corporation:

Common stock 200,000
Retained earnings 300,000*
Cash 500,000
*Gain – P50,000 and RE – P250,000
Chapter 13 – Business Combinations Page 2 of 5

PROBLEM 13-2

(1) To record acquisition of net assets:

Cash and receivables 50,000
Inventory 200,000
Building and equipment 300,000
Goodwill 40,000
Accounts payable 50,000
Common stock, P10 par value 60,000
Additional paid-in capital 480,000

Computation of Goodwill
Price paid (6,000 shares x P90) P540,000
Less: fair value of net identifiable assets acquired
Total assets P550,000
Accounts payable ( 50,000) 500,000
Goodwill P 40,000

(2) To record acquisition-related costs:

Additional paid-in capital 25,000
Acquisition expenses 15,000
Cash 40,000

PROBLEM 13-3

(1) To record acquisition of net assets:

Cash 60,000
Accounts receivable 100,000
Inventory 115,000
Land 70,000
Building and equipment 350,000
Bond discount 20,000
Goodwill 95,000
Accounts payable 10,000
Bonds payable 200,000
Common stock, P10 par value* 120,000
Additional paid-in capital** 480,000

*P10 x 12,000 = P120,000

**P40 x 12,000 = P480,000
Computation of Goodwill
Purchase price (12,000 shares x P50) P600,000
Less: Fair value of net identifiable assets acquired
Total assets P695,000
Total liabilities ( 190,000) 505,000
Goodwill P 95,000

(2) To record acquisition-related costs:

Additional paid in capital 18,000
Acquisition expense 10,000
Cash 28,000
Chapter 13 – Business Combinations Page 3 of 5

PROBLEM 13-4

Combined Statement of Financial Position

After acquisition

Based on P40/share Based on P20/share

Cash and receivables P 350,000 P 350,000
Inventory 645,000 645,000
Building and equipment 1,050,000 1,050,000
Accumulated depreciation (200,000) (200,000)
Goodwill __180,000 ________-
Total assets P2,025,000 P1,845,000

Accounts payable P 140,000 P 140,000

Bonds payable 485,000 485,000
Common stock P10 Par value 450,000 450,000
Additional paid-in capital 550,000 250,000
Retained earnings (including income from
acquisition) __400,000 __520,000
Total liabilities and stockholders’ equity P2,025,000 P1,845,000

Computation of Goodwill – Based on P40 per share:

Price paid (15,000 shares x P40) P600,000
Less: Fair value of net identifiable assets (P545,000 – P125,000) 420,000
Goodwill P180,000

Computation of Income from Acquisition – Based on P20 per share:

Price paid (15,000 shares x P20) P 300,000
Less: Fair value of net identifiable assets 420,000
Income from acquisition (added to retained earnings of Red) P (120,000)
Chapter 13 – Business Combinations Page 4 of 5

PROBLEM 13-5

1. Prepare all journal entries that Peter Industries should have entered on its books to record
the acquisition.

Books of Peter Industries:

(1) To record acquisition of net assets:

Cash 28,000
Accounts receivable 258,000
Inventory 395,000
Long-term investments 175,000
Land 100,000
Rolling stock 63,000
Plant and equipment 2,500,000
Patents 500,000
Special licenses 100,000
Discount on equipment trust notes 5,000
Discount on debentures 50,000
Goodwill 109,700
Allowance for bad debts 6,500
Current payables 137,200
Mortgage payables 500,000
Premium on mortgage payable 20,000
Equipment trust notes 100,000
Debenture payable 1,000,000
Common stock 180,000
APIC – common 2,340,000

Computation of Goodwill
Price paid (180,000 shares x P14) P2,520,000
Less: fair value of net identifiable assets acquired
Total assets P4,112,500
Total liabilities (1,702,200) 2,410,300
Goodwill P 109,700

(2) To record acquisition-related costs:

Additional paid in capital 42,000
Acquisition expenses 135,000
Cash 177,000
Chapter 13 – Business Combinations Page 5 of 5

2. Present all journal entries that should have been entered on the books of HCC to record the
combination and the distribution of the stock received.

Books of HCC:

Common stock (1,500 x P5) 7,500

APIC – Common 4,500
Treasury stock 12,000
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 – P7,500

Investment in stock – Peter (180,000 x P14) 2,520,000

Allowance for bad debts 6,500
Accumulated depreciation 614,000
Current payable 137,200
Mortgage payable 500,000
Equipment trust notes 100,000
Debentures payable 1,000,000
Discount on debentures 40,000
Cash 28,000
Accounts receivable 258,000
Inventory 381,000
Long-term investments 150,000
Land 55,000
Rolling stock 130,000
Plant and equipment 2,425,000
Patents 125,000
Special licenses 95,800
Gain on sale of assets and liabilities 1,189,900
To record sale of assets and liabilities to Peter.

Common stock 592,500

APIC – Common 495,500
APIC – Retirement of preferred 22,000
Retained earnings 1,410,000
Investment in stock – Peter 2,520,000
To record retirement of HCC stock and distribution of Peter Industries stock.
P592,500 = P600,000 - P7,500
P495,500 = P500,000 – P4,500
P1,410,000 = P220,000 + P1,189,900