Professional Documents
Culture Documents
CONSOLIDATIONS
1. BB Inc., DD Inc., and GG Inc. agree to consolidate. It was agreed that the new
corporation will issue a single class of stock at P100 par value. The new shares will be
exchanged for net assets transferred taking into account the effect of goodwill represented
by annual earnings in excess of 6% on asset contributions, capitalized at 20%. Goodwill
calculations are made only for the purpose of making an equitable allotment of the new
shares among the constituent corporations. Their assets and estimated annual earnings
follow:
If the new corporation is to be issued 1,000 shares, how will these be distributed among
BB, DD,
and GG, respectively?
BB DD GG
A. 200 300 500
B. 300 300 400
C. 450 300 250
D. 242 300 458
Stockholders of the two companies agree that a single class of stock be issued, that their
contributions be measured by net assets plus allowances for goodwill, and that 10% be
considered as a normal rate of return. Earnings in excess of the normal rate of return shall
be capitalized at 20% in calculating goodwill. It was also agreed that the authorized
capital stock of the new corporation shall be 20,000 shares with a par value of P100 a
share.
MERGER
10. On April 1, 20x3, AA Corp paid cash of P620,000 for all of the net assets of ZZ Company
appropriately accounted for as a merger. The recorded assets and liabilities of ZZ Company on
April 5, 20x3 follow:
Cash P 60,000
Inventory 180,000
Property, plant and equipment (net of accumulated depreciation
of P220,000) 320,000
Goodwill ( net of accumulated amortization of P50,000) 100,000
Liabilities (120,000)
Net assets P 540,000
On April 1, 20x3, ZZ’s inventory had a fair values of P150,000, and the property, plant and
equipment (net) had a fair value of P380,000.
The amount of goodwill recorded in the books of AA as a result of the business combination
should be:
A. P150,000
B. P120,000
C. P 50,000
D. 0
11. Beauty Company had these accounts at the time it was acquired by Pretty Co.:
Cash P 36,000
Accounts receivable 457,000
Inventories 120,000
Plant, property and equipment 696,400
Accounts payable 350,000
Pretty Co. paid P1,400,000 for net assets of Beauty Co. It was determined that fair market values
of inventories and plant, property, and equipment were P133,000 and P900,000, respectively.
An assumed contingent liability with a fair value amounting to P10,000 and such
amounts is considered a reliable measurement. Also, a P25,000 future losses or
reorganization/restructuring costs are expected to be incurred as a result of the business
combination.
In the books of Pretty Co., this transaction resulted in:
A. Goodwill recorded at P441,000
B. Goodwill recorded at P224,800
C. Goodwill recorded at P234,800
D. Current assets increased by P234,800