ACC 113 QUIZ

Problem 1

On January 1, 2014, Perez Company acquired all the assets and assumed all the liabilities of Stalton
Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds
payable with maturity value of P600,000 a stated rate of 10% interest payable semiannually on June 30
and December 31, a maturity of January 1, 2024 and yield rate of 12%. Balance sheets for Perez and
Stalton (as well as fair value data) on January 1, 2014, were as follows:

Perez Stalton
Book Value Book Value Fair Value
Cash P 250,000 P114,000 P114,000
Receivables 352,700 150,000 135,000
Inventories 848,300 232,000 310,000
Land 700,000 100,000 315,000
Buildings 950,000 410,000 54,900
Accumulated depreciation- buildings (325,000) (170,500)
Equipment 262,750 136,450 39,450
Accumulated depreciation- equipment (70,050) 90,450
Total Assets P2,968,700 P881, 500 P968,350
Current Liabilities P292,700 P95,300 P95,300
Bonds payable, 8% due 1/1/2019, interest payable
6/30 and 12/31
Common Stock, P15 par value 1,200,000 300,000 260,000
Common Stock P5 par value 950,000 263,500
Other contributed capital 170,000
Retained earnings 526,000 79,700
Total equities P2,968,700 P881,500

The amount of goodwill or gain on acquisition:

A. P81, 872 gain

B. P268,952 gain
C. P16,950 goodwill
D. P56,950 goodwill
Problem 2

Pam Company is acquiring the net assets of Jam Company for an agreed-upon price of P900,000 on July
1, 2014. The value was tentatively assigned as follows:

Current assets P100,000

Land 50,000
Equipment 200,000 (5-year life)
Building 500,000 (20-year life)
Current Liabilities (150,000)
Goodwill 200,000

Values were subject to change during the measurement period. Depreciation is taken to the nearest
month. The measurement period expired on July 1, 20X5 at which time the fair values of the equipment
and building as of the acquisition data was revised to P180,000 and P550,000 respectively. At the end of
20x5 what adjustments are needed for the financial statements for the period ending December 31, 20x4
and 20x5?

The 20x4 financial statements would be revised as they are included in the 20x4-20x5 comparative
statements. The 20x4 statements would be based on the new values. The adjustments would be:

A. The equipment and building will be restated at P180,000 and 550,000 and 20x5 balance
sheets.
B. Originally depreciation on the equipment was P40,000 (200,000/5) per year. It will be
recalculated as P36,000 (P180,000/5) per year. The adjustment for 20x4is for a half year20x4
depreciation expense and accumulated depreciation will be restated at P18,000 instead of
P20,000 for the half year. Depreciation expense for 20x5 will be P36,000.
C. Originally, depreciation on building was P25,000 (500,000/20) per year. It will be recalculated
as P27, 500 (500,000/20) per year. The adjustment for 20x4 is for a half year 20x4 depreciation
expense and accumulated depreciation will be restated at P13,750 instead of P12,500 for the
half year. Depreciation expense for 20x5 will be P27, 500.
D. Goodwill is reduced P30, 000 on the comparative 20x4 and 20x5 balance sheets.
Problem 3

Gen acquired the net assets of Mark Corp. on July 1, 20x5. In exchange for net assets at fair market
value of Mark Co. amounting to P835, 740, Geri issued 81,600 shares at a market price of P12 per share
(P9 par value)

Out of pockets cost of the combination were as follows:

Legal fees for the contract of business combination P10,000

Audit fee for SEC registration of share issue 13,000
Cost of shares of stock certificates 7,000
Broker’s fee 8,000
Other direct cost of acquisition 22,000
General and allocated expenses 25,000

Gen will pay an additional cash consideration of P546,000 in the event that Mark’s net income will be
equal or greater than P1,140,000 for the period ended December 31, 20x5. At acquisition there is a high
probability of reaching the target net income and fair value of the additional consideration was
determined to be P234, 000. Actual net income for the period ended December 31, 20x5 amounted to P1,
500, 000. The additional consideration was paid.

1. What is the amount of goodwill to be recognized in the statement of financial position as of

December 31, 20x5?
A. P 0
B. P257, 040
C. P377,460
D. P425,640

2. What amount chargeable to operations (loss/expense) to be recognized for the year ended
December 31, 20x5?
A. P0
B. P337, 000
C. P377, 000
D. 397, 000
Problem 4

On June 1, 2019, Cline Co. paid P800,000 cash for the net assets of Renn Corp. The carrying value for
Renn’s assets and liabilities on June 1, are as follows:

Cash P150,000
Accounts receivable 180,000
Capitalized software cost 320,000
Goodwill 100,000
Liabilities (130,000)
Net assets P620,000

On June 1, 2019, Renn’s accounts receivable had a fair value of P140,000. Additionally, Renn’s in process
research and development was estimated to have a fair value of P200,000. All other items were stated at
their fair values. On June 1 combined balance sheet, how much is reported for goodwill?

A. P320,000
B. P120,000
C. P80,000
D. P20,000

Problem 5

The balance sheet of Sail Company, along with market values of its assets and liabilities, is as follows:

Salt Company
Book value Market value
Dr(cr) Dr(cr)
Current assets P2,000,000 P1,500,000
Plant & equipment (net) 30,000,000 35,000,000
Patents 100,000 2,000,000
Completed technology 0 10,000,000
Broader customer base 0 16,000,000
Technically skilled workforce 3,000,000
Potentially profitable contracts 2,000,000
Licensing agreements 0 4,000,000
Potential contracts with new customer 1,500,000
Advertising jingles 1,000,000
Future cost savings 1,800,000
Goodwill 200,000 700,000
Liabilities (28,000,000) (30,000,000)
Common stock, P10 par (1,000,000)
Additional paid-in capital (5,000,000)
Retained earnings 1,700,000
1. Pail Company pays P100,000,000 in cash for Salt Company’s assets and liabilities. Pail records
good will of:
A. P50,800,000
B. P66,800,000
C. P72,500,000
D. P77,500,000

2. Now assume Pail Company pays P10,000,000 in cash to acquire the assets and liabilities of Salt
Company. Pail records a bargain purchase gain on acquisition of:
A. Zero
B. P12,500,000
C. P17,500,000
D. P28,500,000

3. Pail paid P100,000,000 in cash for Salt. Three months later. Salt’s patents are determined to
have been worthless as of the date of acquisition. The entry to record this information includes
A. A debit to loss of P2,000,000
B. A debit to patents of P2,000,000.
C. A debit to goodwill of P2,000,00.
D. A debit to retained earnings of P2,000,00.

4. Pail paid P10,000,000 in cash for Seattle. Three months later it is determined that Seattle’s
acquisition-date liabilities omitted a pending lawsuit valued at P2,000,000. The entry to record
this information includes
A. A debit to bargain purchase gain on acquisition of P2,000,000.
B. A debit to liabilities of P2,000,000.
C. A debit to goodwill of P2,000,000.
D. A debit to retained earnings of P2,000,000.

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