Solution Manual

Problem 14-10

a. Increase in capital stock (P240,00 P200,000) P 40,000

Increase in APIC (P420,000 P60,000) 360,000

Value of shares issued P 400,000

b. Total assets after combination P1,130,000

Total assets of Subic before combination 650,000

Total fair value of assets of Clark before combination P 480,000

Total liabilities after combination P220,000

Total liabilities of Subic before combination (140,000) ( 80,000)

Fair value of Clarks net assets (including goodwill) P 400,000

Less: Goodwill 55,000

Fair value of Clarks net assets before combination P 345,000

c. Par value of common stock after combination P 240,000

Par value of common stock before combination 200,000

Increase in par value P 40,000

Divided by par value per share ÷ P5

Number of shares issued 8,000 shares

d. Value of shares computed in (a) P 400,000

Number of shares issued computed in © ÷ 8,000

Problem 14-11

a. Inventory reported by Son at date of combination was P70,000

(325,000 P20,000 P55,000 P140,000 P40,000)

b. Fair value of total assets reported by Son:

Fair value of cash P 20,000

Fair value of accounts receivable 55,000

Fair value of inventory 110,000

Buildings and equipment reported following purchase P570,000

Buildings and equipment reported by Papa (350,000) 220,000

Fair value of Sons total assets P405,000

c. Market value of Sons bond:

Book value reported by Son P100,000

Bond premium reported following purchase 5,000

Market value of bond P105,000

d. Shares issued by Papa Corporation:

Par value of stock following acquisition P190,000

Par value of stock before acquisition (120,000)

Increase in par value of shares outstanding P 70,000

Divide by par value per share ÷ P5

Number of shares issued 14,000

e. Market price per share of stock issued by Papa Corporation

Par value of stock following acquisition P190,000

Additional paid-in capital following acquisition 262,000 P452,000

Par value of stock before acquisition P120,000

Additional paid-in capital before acquisition 10,000 (130,000)

Market value of shares issued in acquisition P322,000

Divide by number of shares issued ÷ 14,000

Market price per share P 23.00

f. Goodwill reported following the business combination:

Market value of shares issued by Papa P322,000

Fair value of Sons assets P405,000

Accounts payable P 30,000

Bond payable 105,000

Fair value of liabilities (135,000)

Fair value of Sons net assets (270,000)

Goodwill recorded in business combination P 52,000

Goodwill previously on the books of Papa 30,000

Goodwill reported P 82,000

g. Retained earnings reported by Son at date of combination was P90,000

(P325,000 P30,000 P100,000 P50,000 P55,000)

h. Papas retained earnings of P120,000 will be reported.

i. 1. Acquisition expense 8,500

Additional paid-in capital 6,300

Cash 14,800

Goodwill previously computed (no changes) P82,000

Additional paid-in capital reported following combination P262,000

Stock issue costs (6,300)

Total additional paid-in capital reported P255,700

(1) Liability from contingent consideration 80,000

Loss on contingent payment 40,000

Cash 120,000

2 x (average income of P110,000 P50,000) = P120,000

(2) Additional paid in capital 12,000

Common stock, P1 par 12,000

2 x (average income of P110,000 P50,000) ÷ P10

(3) Additional paid in capital 100,000

Common stock, P1 par 100,000

Deficiency (P12 P8) x 200,000 shares P800,000

Divided by fair value per share ÷ 8

Additional shares to be issued 100,000 shares

Problem 14-13

(1) To record the acquisition of net assets of Baby Company:

Current assets 256,000

Goodwill 761,000

Current liabilities 162,000

Non-current liabilities 440,000

Estimated liability for contingent consideration 75,000

Cash 400,000

Common stock, (15,000 shares x P4) 60,000

Additional paid in capital (15,000 shares x P36) 540,000

Goodwill computation:

Price paid:

Cash P 400,000

Common stock (15,000 shares x P40) 600,000

Contingent consideration (P100,000 x 75%) 75,000

Total price paid 1,075,000

Less: Fair value of net assets acquired

Current assets P 256,000

Non-current assets 660,000

Current liabilities ( 162,000)

Non-current liabilities ( 440,000) 314,000

Goodwill P 716,000

(2) Goodwill 15,000

Estimated liability for contingent consideration 15,000

Problem 14-14

(1) Price paid P500,000

Less: Fair value of net assets acquired 400,000

Goodwill recorded P100,000

(2 a) No, because the carrying amount of the net assets of the business is less

than the recoverable of the unit.

(2 b) Yes.

Estimated recoverable amount of the unit P400,000

Carrying value of the unit, excluding goodwill 340,000

Implied fair value of the goodwill 60,000

Existing recorded goodwill (No. 1) 100,000

Estimated impairment loss P(40,000)

Impairment loss 40,000

Goodwill 40,000