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    Accounting 315 - Quiz Business Combination

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    Alex
    The document provides details of three accounting problems involving business combinations. Problem A involves a merger between Corona Corporation and Dino Company. Corona records the acquisition by debiting assets and crediting liabilities assumed and cash paid for Dino's shares. Problem B involves a consolidation of Companies D, E and F into a new company, DEF Inc. Preference and ordinary shares will be issued to the combining companies based on their net assets and goodwill. Problem C involves a merger of Algo, Bay and Cosio Companies. Algo shares will be issued to Bay and Cosio based on the net assets transferred at a rate of 1 share per P125 of net assets.

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    Accounting 315 - Quiz Business Combination

    Uploaded by

    Alex
    156 views5 pages
    The document provides details of three accounting problems involving business combinations. Problem A involves a merger between Corona Corporation and Dino Company. Corona records the acquisition by debiting assets and crediting liabilities assumed and cash paid for Dino's shares. Problem B involves a consolidation of Companies D, E and F into a new company, DEF Inc. Preference and ordinary shares will be issued to the combining companies based on their net assets and goodwill. Problem C involves a merger of Algo, Bay and Cosio Companies. Algo shares will be issued to Bay and Cosio based on the net assets transferred at a rate of 1 share per P125 of net assets.

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    Quiz(BSA)Oct1.docx

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    The document provides details of three accounting problems involving business combinations. Problem A involves a merger between Corona Corporation and Dino Company. Corona records the acquisition by debiting assets and crediting liabilities assumed and cash paid for Dino's shares. Problem B involves a consolidation of Companies D, E and F into a new company, DEF Inc. Preference and ordinary shares will be issued to the combining companies based on their net assets and goodwill. Problem C involves a merger of Algo, Bay and Cosio Companies. Algo shares will be issued to Bay and Cosio based on the net assets transferred at a rate of 1 share per P125 of net assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    156 views5 pages

    Accounting 315 - Quiz Business Combination

    Uploaded by

    Alex
    The document provides details of three accounting problems involving business combinations. Problem A involves a merger between Corona Corporation and Dino Company. Corona records the acquisition by debiting assets and crediting liabilities assumed and cash paid for Dino's shares. Problem B involves a consolidation of Companies D, E and F into a new company, DEF Inc. Preference and ordinary shares will be issued to the combining companies based on their net assets and goodwill. Problem C involves a merger of Algo, Bay and Cosio Companies. Algo shares will be issued to Bay and Cosio based on the net assets transferred at a rate of 1 share per P125 of net assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    The key takeaways are the steps involved in recording business combinations such as mergers and consolidations on the books of the acquiring and acquired companies.

    The steps involved in recording a business combination on the books of the acquiring company are to record the assets and liabilities acquired at fair value and record goodwill as the difference between consideration paid and net assets acquired.

    When consolidating financial statements, adjustments may be made to recognize assets and liabilities at fair value and to standardize accounting policies between companies.

    ACCOUNTING 315 – QUIZ BUSINESS COMBINATION

    NAME : LEYROS, FE C. CLASS TIME: 3:00-4:30 PM DATE: 10/01/2020

    Instructions: Solve the following problems. Show supporting computation with proper label.

    Problem A
    A merger was effected on June 1 whereby the Corona Corporation took over the assets and
    assumed the liabilities of the Dino Company in exchange for 8,000 shares of its own stock. A
    Statement of Financial Position for the Corona Corporation just prior to the merger shows the
    following:

    Cash, receivables, Current liabilities 105,000


    inventories 365,000 Long-term debt 180,000
    Investments 120,000 Preference shares, P100 par 100,000
    Plant & equipment 400,000 Ordinary shares, P5 par 250,000
    Goodwill & other Paid-in capital in excess of par 90,000
    intangibles 100,000 Retained earnings 260,000
    Total assets 985,000 Total liabilities & SHE 985,000
    ====== ======

    The Dino Company’s Statement of Financial Position consists of the following:

    Cash, receivable, Current liabilities 40,000


    Inventories 80,800 Long-term debt 60,000
    Plant and equipment (net) 140,000 Ordinary shares, P5 par 100,000
    Goodwill 40,000 Paid-in capital in excess of par 30,000
    Appraisal capital 50,000
    Deficit (19,200)

    Total assets 260,800 Total Liabilities & SHE 260,800


    ====== ======

    The Corona Corporation records the assets of the Dino Company at appraised values as follows:
    cash, receivables, and inventories, P56,000; plant and equipment, P120,000. Liabilities are
    understated by certain accrued items totaling P1,200. The stock of the Corona Corporation is
    selling at P12 per share, and this figure is used in recording the purchase of the Company’s net
    assets.

    Required:
    1. Give the entries that would appear on the books of the Corona Corporation as a result of
    the merger. (5 pts.)

    Cash, receivable, Inventories 56, 000


    Plant and equipment (net) 120,000
    Goodwill 21, 000
    Current Liabilities 41,200
    Long-term debt 60,000
    Cash (8000 shares x 12) 96,000
    #

    2. Give the entries on the books of Dino Company. (5 pts.)

    Investment in Corona Corporation (8000 shares x 12) 96,000


    Current Liabilities 40,000
    Long-term debt 60,000
    Loss on sale of business 64,800
    Cash, Receivable, Inventories 80,800

    Plant and equipment (net) 140,000


    Goodwill 40, 000
    #

    3. Compute the amount of the following on the books of Corona Corporation after the merger.
    (3 pts. each)
    a. Total assets P 1,182,200
    b. Total liabilities P 386,200
    c. Total shareholders’ equity P 796,000

    Problem B
    Stockholders of Companies D, E, and F agree to the following plan in effecting a consolidation:

    The new Company, DEF, Inc., shall acquire all of the assets of Companies D, E, and F and shall
    assume all of the liabilities, issuing 6% preference shares, P100 par value, in an amount equal to
    the net assets transferred excluding intangible assets. Assets are to be valued at current market
    or reproduction costs. Average profits for 2017, 2018, and 2019 in excess of 6% of net tangible
    assets after revaluation are to be capitalized at 25% in determining the valuation to be placed on
    goodwill; 150,000 shares of no-par ordinary are to be issued in payment of goodwill.

    Balance sheets on March 31, 2020, when the consolidation is to be made effective, follow:

    Company D Company E Company F


    Cash 120,000 100,000 30,000
    Receivables 280,000 160,000 220,000
    Inventories 700,000 400,000 650,000
    Plant and equipment (net) 2,200,000 1,000,000 1,500,000
    Goodwill 200,000 100,000 ________
    Total assets 3,500,000 1,760,000 2,400,000
    ======== ======== ========
    Accounts payable 350,000 310,000 300,000
    Long-term note payable 1,500,000 500,000
    Ordinary shares, P100 par 1,000,000 500,000 2,000,000
    Retained earnings (Deficit) 650,000 950,000 (400,000)
    Total liabilities & SHE 3,500,000 1,760,000 2,400,000
    ======== ======== ========

    Current market values:

    Inventories 950,000 500,000 800,000


    Plant and equipment (net) 3,000,000 1,300,000 1,750,000

    Average earnings for the three-year period ended Dec. 31, 2019, were as follows: Company D,
    P160,000; Company E, P120,000; and Company F, P125,000.

    Required:

    1. Prepare the entries on the books of DEF to record the consolidation. (5 pts.)
    2. Calculate the number of shares to be issued by DEF. (3 pts. each)
    a. Preference shares __________________
    b. Ordinary shares __________________

    3. Calculate the total assets of the new company after the consolidation. ________________ ( 3
    pts.)

    4. Calculate the total shareholders’ equity of the new company. __________________ (3 pts.)

    Problem C
    Shareholders of Algo Company, Bay Company, and Cosio Company agree to a merger. Bay
    Company and Cosio Company are to accept shares of Algo Company in exchange for all of their
    assets and liabilities on the basis of 1 share for every P125 of net assets transferred. On Dec. 31,
    2019, the date of the transfer, balances on the books of the separate companies are as follows:

    Algo Co. Bay Co. Cosio Co.


    Assets:
    Current assets 230,000 200,000 230,000
    Plant and equipment (net) 450,000 250,000 370,000
    Goodwill 20,000 50,000
    Total assets 700,000 450,000 650,000
    ====== ====== ======
    Liabilities & Stockholders’ Equity:
    Current liabilities 175,000 120,000 190,000
    Bonds payable 100,000 200,000
    Ordinary shares, P100 500,000 150,000 200,000
    Additional paid-in capital 45,000 90,000
    Retained earnings (deficit) (20,000) (10,000) 60,000
    Total liabilities & SHE 700,000 450,000 650,000
    ====== ====== ======
    The following adjustments are to be made in arriving at the net asset contributions of Bay
    Company and Cosio Company for purposes of the merger:

    a. The inventory of the Bay Company is presently stated on a LIFO basis at P100,000; the
    inventory is to be recognized at P160,000, representing cost calculated on a FIFO basis
    consistent with the costing procedures of the other companies.
    b. All other assets and liabilities are already stated at their fair values.

    Required:

    1. Prepare the entries on the books of Algo Co. (5 pts.)

    Current asset 490,000


    Property and Equipment 620,000
    Current Liability 310,000
    Bonds Payable 300,000
    Ordinary Shares 500,000

    2. Prepare the entries on the books of Bay Co. and Cosio Co. (10 pts.)

    Bay Co

    Investment on Alco Co. 290,000


    Current Liability 120,000
    Bonds Payable 100,000
    Current Assets 200,000
    Plant and Equipment (net) 250,000
    Ordinary Shares 60,000
    #

    Cosio Co

    Investment on Algo Cop. 210,000


    Current Liabilities 190,000
    Bonds Payable 200,000
    Ordinary Shares 200,000
    Current Assets 230,000
    Plant and Equipment 370,000
    Goodwill 50,000
    #
    3. Calculate the amount of the following on the books of Algo Co. after the merger. (3 pts.
    each)

    a. Increase in total assets P 1,110,000


    b. Increase in total liabilities P 610,000
    c. Increase in total shareholders’ equity P 1 025,000

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