Business Combination

Name: _______________________________ Score: _______________ Grade: _____________

Year and Section: _______________________Permit No: ___________ Date: ______________

QUIZ 2

Problems (40 pts)

____ 1. The home office reported total assets and liabilities of Php200,000, and Php40,000, respectively.
The branch reported as well assets and liabilities of Php80,000, and Php50,000, respectively.
How much is the combined total assets?

____ 2. The home office book has a total assets and liabilities of Php180,000, and Php40,000,
respectively. The branch reported as well assets and liabilities of Php80,000, and Php50,000,
respectively. The ending balance of allowance for branch inventory mark-up amounted to
Php3,000. How much is the combined total assets?

The home office and its branch reported the following amounts:

Home Office Branch

Sales Php200,000 Php80,000
Cost of sales 60,000 34,500
Expenses 80,000 32,000
Ending inventory 12,000 1,650

1/3 of the cost of ending branch inventory, in the point of view of home office, is acquired from
home office. The ending inventory in the combined financial statement showed Php13,500.
Half of the branch's cost of goods sold per GAAP were acquired from home office.

____ 3. How much is the cost of goods sold in the combined income statement?

____ 4. The combined cost of goods available for sale amounted to

____ 5. The home office and its branch reported the following amounts:

Home Office Branch Combined

Cost of goods available for sale Php245,000 Php34,300 Php272,500
Purchases 250,000 10,000 260,000
Beginning inventory, acquired from outside 10,000 500 12,500
supplier

How much is the mark-up on branch's beginning inventory?

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The home office and its branch reported the following amounts:

Home Office Branch

Total assets, net Php500,000 Php150,000
Total liabilities 30,000 30,000
Revenues 120,000 60,000
Cost and expenses 80,000 40,000

The realized mark-up on branch inventory amounted to Php14,000, while ending balance of
unrealized mark-up on branch inventory amounted to Php1,500.

____ 6. How much is the opening balance of the investment in branch account in the following
year?

____ 7. How much is the equity in the combined financial statements?

____ 8. How much is the combined net income?

____ 9. The branch reported the following:

Beginning inventory - home office Php10,000

Purchases 80,000
Purchase discount 2,000
Shipments from home office 70,000
Freight in - home to branch 1,000
Freight in - supplier to branch 500

If 20% and 10% of the merchandise available for sale that is acquired from home office
and from outside supplier, respectively, remain unsold as of year end, how much is the cost
of goods sold per branch book?

____ 10. On December 30 of the current year, the home office of Took Mall has a shipment in transit
costing Php10,000 plus 20% mark-up. On December 28 of the same year, the branch’s
warehouse was damaged by fire, destroying 60% of the inventory. The branch has a cost of
goods available for sale of Php370,000 prior to the fire incident. The sales data of the branch
generated as of December 31 is as follow:

Sales Php393,000
Sales allowances 2,500
Sales returns 3,000

If the branch sells the goods at billed price plus 30% markup, how much is the branch’s
inventory balance as of December 31?

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The Boy George Company acquired the net assets of the Girl Conrad Company on January 1,
2015, and made the following entry to record the purchase:

Current assets 100,000

Equipment 150,000
Land 50,000
Buildings 300,000
Goodwill 100,000
Liabilities 80,000
Common stock, P1 par 100,000
Paid-in capital in excess of 520,000
par

Assuming that additional shares on January 1, 2017 would be issued on that date to compensate
for any fall in the value of Boy George common stock below P16 per share. The settlement
would be to cure the deficiency by issuing added shares based on their fair value on January 1,
2017. The fair price of the shares on January 1, 2017 was P10.

____ 11. What is the amount of paid-in capital in excess of par on January 1, 2017 immediately after
the additional shares were issued?

On November 30, 2018, Ganda Corporation assumed all assets and liabilities of Dara Company.
The pre-combination trial balances are as follow:

Ganda Dara
Book Fair Book Fair
Total assets Php300,000 Php290,000 Php19,000 Php12,500
Total liabilities 30,000 34,000 1,500 1,300
Ordinary shares, Php20 par 200,000 20,000
Share premium 10,000 1,000
Retained earnings (Deficit) 60,000 (3,500)

____ 12. If Ganda paid cash of 10,000 and equipment with a fair value and book value of 30,000,
and 28,000, respectively, how much is the goodwill of gain on bargain purchase?

____ 13. If Ganda paid cash of 1,000, loans payable of 6,000, and equipment with a fair value and
book value of 13,000, and 15,000, respectively, how much is the goodwill of gain on bargain
purchase?

On December 31, 2018, Papi Corporation acquired all the assets and assumed all liabilities of
Papu Corporation for a consideration of Php1,680,000 which consists of the following:

Cash Php700,000
Equipment, with book value of Php290,000 300,000
Loans payable 200,000
Papi's own ordinary shares 400,000
Contingent consideration 80,000

The fair value of Papu's asset and liability accounts are as follow:

Current Noncurrent
Assets Php200,000 Php1,500,000
Liabilities 24,800 186,000

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Answer the following independent assumptions:

____ 14. If Papi and Papu has a precombination balances of noncurrent assets for Php2,500,000,
and Php1,288,000, respectively, how much is the combined balance of noncurrent assets?

____ 15. Assume that Papu's land has a provisional value of Php500,000, and was discovered that on
June 1, 2019, the fair value of the land as of acquisition date is Php520,000, how much is
the goodwil or bargain purchase gain?

____ 16. Assume Papi has a total assets prior to business combination of Php2,500,000, and Papu's
building has a provisional value of Php500,000, and was discovered that on June 1, 2019, its
fair value as of acquisition date is Php480,000. How much is adjustd total assets of the
combined entity?

Ganda Ko acquired all the assets and assumed all the liabilities of Ganda Korin for a total
consideration consisting of th following:

Cash Php1,500,000
10,000 of Ganda Ko's own ordinary shares, Php10 2,000,000
par
Contingent consideration - Ganda Ko’s shares of 200,000
stock
Equipment, with a book value of Php900,000 800,000
Bonds payable, Php500,000 face value 480,000

Acquisition related cost are as follows:

Share issue cost Php40,000

Bond issue cost 24,000
Finder's fee 30,000
Accounting and legal fees 40,000

The fair value of net assets of Ganda Korin amounted to Php,5,000,000

____ 17. What is the total effect of the acquisition on the retained earnings of Ganda Ko?

____ 18. What is the total effect of the acquisition on the contributed capital of Ganda Ko?

Abakada Incorporated acquired all the assets and liabilities of Egaha Company on January 1,
2018. The consideration are as follows:

Cash 2,000,000
Equipment 500,000
Cash contingency 30,000
Stock contingency 50,000
Bank loan, at face value 1,000,000

The cash payments are distributed to the following payees:

Former owners of Egaha Company 1,800,000

Lawyers for legal services 80,000
Actuarial for valuation of Egaha's net assets 50,000
Bank, transaction costs for the bank loan 70,000

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Answer the following independent questions:

____ 19. If the fair value of net assets of Egaha amounted to Php3,000,000, how much is the goodwill
(bargain purchase gain) on business combination?

____ 20. If bargain purchase gain on the acquisition amounted to Php40,000, how much could be
the fair value of net assets acquired?

END OF EXAMINATION

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