1

Republic of the Philippines

CAGAYAN STATE UNIVERSITY
Tuguegarao City
College of Business, Entrepreneurship and Accountancy
First Mockboard Examinations Practical Accounting 2 R.S.Purugganan

I. Multiple Choice (2 points each - total 100 points)

Instructions: Choose the BEST answer for each of the following items. Mark only one answer for each item on the
Special Answer Sheet provided. Any alteration or erasure is considered a wrong answer. (Submit supporting
computations in good form) Do not write on the Questionnaire
Use the following data to answer numbers 1 - 6:

On January 2, 2010 YOU Corporation acquired all of ME Corporation’s assets and liabilities by issuing shares of its
common stock. Partial balance sheet data for the companies prior to the business combination and immediately after the
combination are as follows:
____________________________________________________________________________________________
YOU Corp. ME Corp. Combined
Book value Book value Entity
____________________________________________________________________________________________
Cash P 40,000 P 10,000 P 50,000
Accounts receivable 60,000 30,000 88,000
Inventory 50,000 35,000 96,000
Buildings and equipment (net) 300,000 110,000 430,000
Goodwill ________ ______ ?___
Total Assets P450,000 P185,000 ?___

Accounts payable P 188,000 P 84,000 P 272,000

Comon stock, P15 par 100,000 40,000 126,000
Additional paid in capital 65,000 28,000 247,000
Retained Earnings 97,000 33,000 ?___
Total liabilities and equities P 450,000 P 185,000 P ?___

1. What number of shares did YOU issue to acquire ME’s assets and liabilities?
a. 2,500 c. 5,000
b. 4,500 d. 5,200
2. What was the market value of the shares issued by YOU?
a. P200,000 c. P208,500
b. P208,000 d. P250,000
3. What was the fair value of the inventory held by ME at the date of combination?
a. P35,000 c. P46,000
b. P40,000 d. P64,000
4. What was the fair value of the net assets held by ME at the date of combination?
a. P125,000 c. P135,000
b. P130,000 d. P140,000
5. What amount of goodwill, if any, will be reported by the combined entity immediately following the combination?
a. P75,000 c. P87,000
b. P78,000 d. P88,000
6. If the depreciable assets held by ME had an average remaining life of ten years at the date of acquisition, what amount
of depreciation expense will bve reported on those assets on December 31, 2010?
a. P12,000 c. P14,000
b. P13,000 d. P15,000

. Use the following data to answer Nos. 7-9:

Chico Company acquired Atis Corporation on January 2, 2010, by issuing common shares. All of Atis’assets and
liabilities were immediately transferred to Chico, which reported total par value of shares outstanding of P218,400 aqnd
P327,600 and additional paid in capital of P370,000 and P370,000 and P650,800 immediately before and after the
business combination, respectively.

7. Assuming that Chico’s common stock had a market of P25 per share at the time of acquisition, what number of shares was
issued?
a. P10,000 b. P10,500 c. P15,000 d. P15,600
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8. What is the par value per share of Chico’s common stock?

a. P7 b. P8 c. P9 d. P10
9. Assuming that Atis’identifiable assets had a fair value of P476,000 and its liabilities had a fair value of P120,000, what
amount of goodwill did Chico record at the time of the business combination?
a. P30,000 b. P34,000 c. P35,000 d. P40,000
10. KING Company acquired all of QUEEN Corporation’s assets and liabilities on January 2, 2008, in a business
combination, at that date, QUEEN reported assets with a book value of P624,000 and liabilities of P356,000. KING noted
that QUEEN had P40,000 of research and development costs on its books at the acquisition date that did not appear to be
of value. KING also determined that patents developed by QUEEN had a fair value of P120,000 but had not been
recorded by Queen. Except for building and equipment. KING determined the fair val;ue of all other assets and liabilities
reported by QUEEN approximated the recorded amounts. In recording the transfer of assets and liabilities to its books,
KING recorded goodwill of P93,000. KING paid P517,000 to acquire QUEEN’s assets and liabilities.

If the book value of QUEEN’s buildings and equipment was P341,000 at the date of acquisition, what was their fair value?
a. P417,000 c. P341,000
b. P417,500 d. P441,000
11. On January 2, 2010, BAGO Corporation pays P200,000 cash and also issues 18,000 shares of P10 par common stock with
a market value of P330,000 for all the outstanding stock of LUMA Company. In addition, BAGO pays P30,000 for
registering and issuing the 18,000 shares and P70,000 for the other direct costs of the business combination, in which
LUMA Corporation is dissolved. Summary balance sheet information for the companies immediately before the merger is
as follows (in thousands).

BAGO LUMA LUMA

Book Value Book Value Fair Value
Cash P350 P40 P40
Inventories 150 100 120
Property and equipment, net 260 180 280

Total assets P760 P320 P440

Liabilities P240 P80 P70

Common stock 420 200
Retained earnings 100 40

Total liabilities and equity P760 P320

What is the amount of goodwill to be recognized by BAGO Corporation?

a. P230,000 c. P300,000
b. P260,000 d. P370,000

Use the following data to answer Nos. 12-15:

Papa Corporation issued 120,000 shares of P10 par common stock with a fair value of P2,550,000 for all the outstanding
stock of Mama Company. In addition, Papa incurred the following costs:
Professional fees to arrange the business combination P25,000
Cost of SEC registration 12,000
Cost of printing and issuing stock certificates 3,000
Indirect costs of combining 2,000

Immediately before the business combination in which Mama Company was dissolved, Mama’s assets and equities were
as follows (in thousands).
Book value Fair
value
Current assets P1,000 P1,100
Plant assets 1,500 2,200
Liabilities 300 300
Common stock 2,000
Retained earnings 200

After reassessment, it was determined that the fair value of the plant assets is P1,800,000.

12. What is the total acquisition cost?

a. P2,550,000 c. P2,575,000
b. P2,555,000 d. P2,580,000
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13. Using the data in No.12, how much additional paid in capital is recorded by Papa?
a. P1,330,000 b. P1,335,000 c. P1,350,000 d. P1,365,000
14. Using the data in No. 12, Papa should recognize:
a. Goodwill of P45,000 c. negative goodwill of P425,000
b. Goodwill of P425,000 d. Income from acquisition of P25,000
15. Using the data in No. 12, the net assets acquired is to be recorded by Papa at:
a. P2,200,000 c. P3,000,000
b. P2,600,000 d. P3,300,000
16. MALAKAS Corporation and MAGANDA Company agreed to combine their businesses, with MALAKAS Corporation
as the surviving entity. MALAKAS will issue 48,000 shares of its capital stock, with a par value of P100 per share, and a
fair market value of P175 per share. MALAKAS incurred the following additional acquisition costs:

Professional fees P120,000

Indirect acquisition costs (after combination) 80,000
Costs to register and issue stock 50,000

Before combination, their respective balance sheets showed stockholders’ equity accounts as follows:

MALAKAS MAGANDA
Capital stock P7,200,000 P3,600,000
Additional paid in capital 3,120,000 360,000
Retained earnings 6,000,000 2,040,000

Under the purchase method of acquisition, the total stockholders’ equity of MALAKAS Corporation after the combination
is :
a. P24,670,000 c. P24,840,000
b. P24,720,000 d. P24,890,000
17. GWAPO Corporation was merged into GWAPA Company in a combination properly accounted for as a purchase of
interests. Their condensed balance sheets before the combination are:

GWAPO GWAPA
Current assets P3,288,000 P1,627,600
Property and equipment, net 4,654,000 1,040,000
Patents - 260,000
Total assets P7,942,000 P2,927,000

Liabilities P3,704,000 P171,600

Capital stock, Par 100 2,600,000 1,300,000
Additional paid in capital 390,000 350,000
Retained earnings 1,248,000 1,106,000
Total liabilities and equity P7,942,000 P2,927,600

Per appraisal’s report, GWAPA assets have fair values of:

Current assets P1,653,600

Property and equipment 1,248,000
Patents 338,000

GWAPO Corporation purchases the net assets of GWAPA for P3,168,000 cash.

What is the total asset of GWAPO Corporation after the combination?

a. P7,254,000 c. P8,113,600
b. P7,354,000 d. P9,181,600

18. PULA Corporation will issue common shares with a par value P10 for the net assets of PUTI Company. PULA’s common
stock has a current market value of P40 per share. PUTI’s balance sheet on the date of acquisition follow:

Current assets P320,000 Common stock, P5 par P80,000

Property and equipment 880,000 Additional paid in capital 320,000
Liabilities 400,000 Retained earnings 400,000
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PUTI’s current assets are appraised at P400,000 and the property and equipment was also appraised at P1,600,000. Its
liabilities are fairly valued. Accordingly, PULA Corporation issued shares of its common stock with a total market value
equal to that of PUTI’s net assets including goowill.

To recognize goodwill of P200,000, how many shares were to be issued by PULA?

a. 40,000 b. 45,000 c. 50,000 d. 55,000
19. The stockholders’equities of FATHER Corporation and MOTHER Company at July 1, 2010 were as follows:
FATHER MOTHER
Capital stock, P100 P15,000,000 P8,000,000
Additional paid in capital 2,000,000 4,000,000
Retained earnings 6,000,000 3,000,000

On July 2, 2008, FATHER issued 150,000 of its shares with a market value of P120 per share for the assets and liabilities
of MOTHER, and MOTHER was dissolved. On the same day, FATHER paid P50,000 for indirect cost and P100,000 for
SEC registration of equity secutrities.

After the combination, what is the total stockholders’ equity of FATHER Corporation?
a. P40,850,000 c. P41,000,000
b. P40,900,000 d. P41,150,000
20. On May 31, 2010, MAHAL Company has assets and liabilities with the following fair values:

Current assets P180,000

Non-current assets 220,000
Liabilities 40,000

On June 1, 2010, GILIW Corporation purchases the net assets of MAHAL Company for P310,000 cash.

In the books of GILIW Corporation, the acquisition resulted in:

a. Negative goodwill of P50,000
b. Income from acquisition of P50,000
c. Reduction from current assets of P50,000
d. Deduction from non current assets of P50,000
21. On May 1, 2010, SWEET Corporation paid cash of P600,000 for all of the net assets of HEART Company and HEART is
dissolved. The carrying value of the assets and liabilities of HEART on May 1, 2010 follow:

Cash P60,000
Inventory 180,000
Plant and equipment (net accumulated Depreciation of P220,000) 320,000
Goodwill 100,000
Liabilities 120,000

On May 1, 2010, HEART inventory had a fair value of P150,000, and the plant and equipment (net) had a fair value of
P380,000.

What is the amount of goodwill recorded in the books of SWEET as a result of the business combination?
a. P-0- b. P30,000 c. P100,000 d. P130,000
22. When MAYAMAN Company acquired POBRE Company’s net assets by issuing its own capital, it had the following
expenditures:

Broker’s fee P50,000

Pre-acquisition audit fee 40,000
Legal fees for merger agreement 47,000
Audit fee for SEC registration of stock issue 46,000
Printing of stock certificates 11,000

Under PAS No. 3, the expenditures that should be debited to Additional Paid-in Capital (APIC) account is:
a. P-0- c. P57,000
b. P46,000 d. P137,000
23. On June 30, 2010 PURAW Corporation issued 100,000 shares of its P20 par value common stock for the net assets of
NEGRO Company in a combination accounted for by the purchase method. The market value of PURAW’s common
stock on June 30 was P36 per share. PURAW paid a fee of P100,000 to the broker who arranged this acquisition. Costs of
SEC registration and issuance of the equity securities amounted to P50,000.
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Contingent consideration determined to be paid after acquisition amounts to P20,000.

What amount should PURAW capitalize as the cost of acquiring NEGRO’s net assets.
a. P3,650,000 c. P3,720,000
b. P3,700,000 d. P3,750,000
24. Plata Corporation paid P100,000 cash for the net assets of Oro Company, which consisted of the following:
Book Value Fair Value
Current assets P20,000 P28,000
Property and equipment 80,000 110,000
Liabilities assumed 20,000 18,000
The property and equipment acquired in the business combination should be recorded at:
a. P90,000 c. P100,000
b. P91,666 d. P110,000
25. On April 1, 2010, DEEKO Corporation paid P800,000 for the assets and liabilities of ALLAM Company in a transaction
properly accounted for as a purchase. The book value of the assets and liabilities of ALLAM Company on April 1, 2010,
follow:
Cash P80,000
Inventory 240,000
Plant and equipment (net of accumulated
depreciation 480,000
of P320,00)
Liabilities 180,000
On April 1, 2007, it was determined that the inventory of ALLAM had a fair value of P190,000 and the plant and
equipment (net) had a fair value of P560,000.
What is the amount of goodwill resulting from the business combination?
a. P-0- c. P150,000
b. P50,000 d. P180,000

Use the following information to answer questions 26 to 30

On January 2, 2010, Polo Corporation purchase 80% of Son Company’s common stock for P324,000. P15,000 of the
excess is attributable to goodwill and the balance to a depreciable asset with an economic life of ten years. Non-
controlling interest is measured at its fair value on date of acquisition. On the date of acquisition, stockholders’ equity of
the two companies are as follows:

Polo Corporation Son Corporation

Common Stock P525,000 P120,000
Retained earnings 780,000 210,000

On December 31,2010, Son Company reported net income of P52,500 and paid dividends of P18,000 to Polo. Polo
reported earnings from its separate operations of P142,500 and paid dividends of P69,000. Goodwill had been impaired
and should be reported at P3,000 on December 31,2010.
26. What is the consolidated net income on December 31,2010?
a. P178,875 c. 189,375
b. P177,000 d. 180,000
27. What is the consolidated retained earnings on december 31,2010?
a. P879,000 c. P881,100
b. P878,700 d. P1,039,875
28. What is the NCI in net income of Son Company on December 31,2010?
a. P9,375 c. P9,300
b. P10,500 d. P6,900

29. What amount of NCI is to be presented in the consolidated balance sheet on December 31,2010?
a. P82,125 c. P77,250
b. P83,400 d. P72,750
30. What is the consolidated net income attributable to parent shareholders on December 31,2010?
a. P168,000 c. P178,200
b. P170,100 d. P180,000
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31. PP company purchase 75 % of the capital stock of SS company on December 31, 2005 at P210,000 more the book value
of its net assets. The excess was allocated to equipment in the amount of P93,750 and to goodwill for the balance. the
equipment has an estimated useful life of 10 years and goodwill was not impaired. For four years SS Company reported
cumulative earnings of P945,000 and paid P273,000 in dividends. On January 2, 2010, non-controlling interest in net asset
of SS company amounts to P393,750.
Assuming NCI is measured at estimated fair value,what is the price paid by PP company on the date of acquisition?
a. P887,250 c. P705,375
b. P700,875 d. P840,000
. Use the following information to answer question 32 to 35
Pepe corporation purchase 70% of Sisa company’s outstanding stock on January 2, 2009 for P346,500 cash. At the date,
Sisa company reported book value of its net assets as P420.000. The excess is allocated to a depreciable asset with a
remaining life of 10 years. The companies reported the following data for 2010:
Retained Earnings
January 1 Net income Dividends
Pepe corporation P780,000 P180,000 P75,000
Sisa 345,000 37,500 15,000
Non-controling is measured at its estimated fair value. The following entry was included in the eliminating entries to
prepare the consolidated financial statements at December 31,2010:
Retained earnings,1/1-Sisa 31,500
non-controlling interest 31,500
32. What is the amount of retained earnings of Sisa company on January 2, 2009?
a. P232,500 c. P240,000
b. P247,500 d. P255,000
33. What is the consolidated retained earnings to be reported on January 1, 2010?
a. P853,500 c. P861,000
b. P885,000 d. P1,125,000
34. What is the consolidated net income attributable to parent shareholders on December 31, 2010?
a. P199,500 c. P217,500
b. P190,500 d. P210,000
35. What is the consolidated retained earnings at December 31,2010?
a. P969,000 c. P978,000
b. P895,500 d. P1,035,000
Use the following information to answer question 36 to 37
On January 2, 2010, P company acquired 80% interest in S company for P4,125,000 cash. On this date the outstanding
capital stock and retained earnings of P company and S company are as follows:
P company S company
Common stock P2,250,000 P1,312,000
APIC 1,500,000 -
Retained earnings 5,250,000 3,187,500

There was no issuance of capital stock during the year. Non- controlling interest is measured at its fair value. Fair values
of the following assets exceeded their book values as follows: Inventories, P210,000; property and equipment (useful
life,10 years),P127,500. All other assets and liabilities are fairly valued. Goodwill if any is not impaired. On December
31,2010 the two companies reported the following operating results:
P company S company
Net income P1,785,000 P975,000
Dividends paid 525,000 262,500
36. What is the consolidated net income attributable to parent on December 31, 2010?
a. P2,550,000 c. P2,176,800
b. P2,327,250 d. P2,355,000
37. What is the consolidated stockholders equity to be reported in the consolidated balance sheet on December 31, 2010?
a. P10,651,800 c. P7,035,000
b. P13,500,000 d. P11,781,000

. Use the following information to answer 38 to 42

P company acquired 95 % interest from S company on January 2, 2009. The inventories acquired from affiliate in 2010
are: Beginning inventory, P84,375; ending inventory,P168,750. Intercompany sale of merchandise during the year
amounts to P337,500 at a gross profit rate of 30%. In 2010 the data relating to the operations of P company and S
company are:
P company S company
Sales P2,325,000 P1,275,000
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Cost of sales 1,087,500 667,500

Ending Inventory 230,000 210,000
Net income 843,750 506,250
Dividends Paid 337,500 168,750

38. Assuming downstream sale,what is the consolidated net income attributable to parent shareholders?
a. P1,139,062.50 c. P1,125,075
b. P1,140,328 d. P1,162,800
39. Assuming upstream sale,what is the consolidated net income attributable to parents shareholders?
a. P1,139,062.50 c. P1,125,075
b. P1,140,328 d. P1,162,800
40. What is the consolidated sales?
a. P3,600,000 c. P3,350,000
b. 3,262,500 d. P3,512,500
41. What is the cost of sales?
a. P1,394,687.5 c. P1,755,000
b. P1,417,500 d. P1,442,812.5
42. What is the consolidated ending inventory?
a. P387,687.5 c. P389,375
b. P425,125 d. P390,000
43. On January 2, 2009, PP company purchased 70% of the stock of SS Company at book value. On may 1, 2009, PP
company acquired a used machinery for P337,500 from SS company that was carried in the latters book at P270,000. The
machinery has a remaining life of 6 years. on October 1, 2010, SS company purchased an equipment that was already
30% depreciated from PP company for P570,000. The original cost of this equipment was P900,000 and had a remaining
life of 5 years.
PP company SS company
Net income P945,000 P165,000
Dividends paid 345,000 -

On the consolidated income statement in 2010, what is the consolidated net income attributable to parent stockholders?
a. P1,125,375 c. P1,178,250
b. P1,131,375 d. P1,128,375

44. On September 18, 2010, OL Co. acquired all the TM Inc.’s P2,000,000 identifiable assets and P500,000 liabilities. Book
values of the TM’s assets and liabilities equal to their fair values except for the overvalued plant & equipment. As a
consideration, OL issued its own shares of stock with a market value of P1,600,000. The merger resulted into P700,000
goodwill. Assuming OL had P5,000,000 total assets prior the combination.

How much is the combined total assets?

a. P6,400,000 c. P7,100,000
b. P6,600,000 d. P7,000,000
Use the following information for questions 45& 46
A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company are presented below:
Carrying value Fair Value
Current assets P 184,000 P 202,250
Property and equipment 296,250 345,000
Patent 29,250 24,000
Total asstes P 509,500

Current Liabilities P 53,750 P 53,750

Non-current liabilities 140,000 148,750
Capital stock, P20 par value 105,000
Retained earnings 210,750
Total liabilities and stockholders’equity P 509,750

On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair value, P45 per share)
and P125,500 cash for the net assets of DEF Company. Of the P116,250 acquisition related costs paid by LMN
Corporation on August 1, 2010, P20,000 were stock issuance cost.
45

How much is the goodwill (gain on acquisition) to be recorded by LMN Corp.?

a. P 12,500 c. P (43,000)
b. P (12,500) d. P 43,000
46.
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What is the net increase in the stockholder’s equity in the books of LMN Corporation as a
result of the business combination?
a. P 139,500 c. P 127,000
b. P 319,500 d. P 200,250
47. The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January 1, 2010, just before
they entered into a business combination.
HIJ Corp NOP Co.
Cash P 210,000 P 5,000
Accounts receivable 75,000 20,000
Merchandise inventory 200,000 50,000
Building and equipment 400,000 100,000
Accumulated depreciation (100,000) 25,000
Goodwill __________ 50,000
Total Assets P 785,000 P 200,000
Accounts payable P 125,000 P 70,000
Bonds payable 200,000 30,000
Common stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained earnings 200,000 40,000
Total Liabilities & Stockholders’ equity P 785,000 P 200,000
On that date, the fair market value of NOP’s inventories and building and equipment were P78,000 and P124,000
respectively, while bonds payable has a fair value of P42,000. The fair market values of all other assets and liabilities of
NOP (except for goodwill) were equal to thier book values. HIJ Corp. acquired the net assets of NOP Co. by issuing 2,500
shares of its P30 par value common stock (current fair value P36 per share) and purchase price in cash amounting to
P12,000. Contingent consideration that is determinable (probable and reasonably estimated) amount to P2,000. Additional
cash payments made by HIJ Corp. in completing the acquisition were: Legal fees for contract of business combination,
P8,000; Accounting and legal fees for SEC registration, P11,000; Printing costs of stock certificates, P6,000; Finder’s fee,
P7,000; Indirect cost, P5,000.

As a result of the business combination, the amount of total assets and liabilities, respectively,
in the books of the surviving company
a. P 1,016,000 : P437,000 c. P 963,000 : P439,000
b. P 963,000 : P437,000 d. P 1,013,000 : P439,000
48.
As a result of the business combination, the amount of common stock, additional paid-in
capital and retained earnings, respectively, in the books of the surviving company

a. P285,000 : P48,000 : P195,000 c. P285,000 : P50,000 : P189,000

b. P285,000 : P50,000 : P193,000 d. P260,000 : P60,000 : P240,000
49. On January 2, 2010, the FB Company purchased the net assets of CP Company by issuing shares of stocks at P1,500,000
fair market value. Book value and fair value balances sheet data on January 1, 2010, are as follows:
FB Company CP Company
Book Value Fair Value Book Value Fair Value
Cash P 2,300,000 P 2,300,000 P 150,000 P 150,000
Accounts receivable 500,000 500,000 490,000 490,000
Inventory 750,000 650,000 355,000 300,000
Building & Equipment, net 900,000 730,000 760,000 532,000
Goodwill 45,000 40,000
TOTAL ASSETS P 4,450,00 P 4,180,000 P1,800,000 P 1,512,000
Liabilities P 500,000 P 500,000 P 285,000 P 285,000
Capital stock 800,000 300,000
Additional paid in capital 450,000 480,000
Retained Earnings 2,700,000 735,000 `
TOTAL LIAB & SHE P 4,450,000 P 1,800,000

FB incurred and paid legal and brokerage fees of P45,000 for business combination; and P15,000 indirect acquisition
costs. Contingency fee of P20,000 for additional legal services would be paid within the year. Immediately after the
business combination:
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The combined total assets is:

a. P4,750,000 c. P6,195,000
b. P6,240,000 d. P6,300,000
50. BGP, SRL and KCJ agreed to a business combination. Their condensed balance sheets before combination show:
BGP SRL KCJ
Book Value Fair Value Book Value Fair Value
ASSETS P 7,000,000 P 875,000 P950,000 P9,625,000 P9,000,000
Liabilities 4,987,500 307,000 2,625,000
Capital stock, P100 par 2,625,000 437,000 1,750,000
Additional paid in capital 218,000 700,000
Retained earnings/ (612,000) (87,500) 4,550,000
(deficit)
LIABILITIES & SHE P 7,000,000 P 875,000 P9,625,000

It was agreed that BGP will be the continuing entity and shall issue 4,180 shares to SRL and 60,800 shares to KCJ. Market
value of BGP’s share on the date of business combination is P102. Immediately after the business combination:

The stockholders’equity of BGP increased by:

a. P6,237,920 c. P7,018,000
b. P9,030,500 d. P6,627,960
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EXAMS – First Preboard Exams – Practical Accounting 2

Answer Section
MULTIPLE CHOICE
1. ANS: D
Combined common stock P126,000
Common stock - YOU (100,000)
Common stock issued P 26,000
No. of shares issued (P26,000 / P5) 5,200 shares
PTS: 1
2. ANS: B
Combined common stock P126,000
Combined APIC 247,000
Common stock - YOU before acquisition (100,000)
APIC - YOU before acquisition ( 65,000)
Fair value of shares issued by YOU P208,000
PTS: 1
3. ANS: C
Combined inventory P96,000
Book value of inventory - YOU (50,000)
Fair value of inventory of ME P46,000
PTS: 1
4. ANS: B
Combined net assets before goodwill (P664,000 - P272,000) P392,000
Book value of net assets of YOU (P450,000 - P188,000) (262,000
Fair value of net assets of ME at the date of combination P130,000
PTS: 1
5. ANS: B
Fair value of shares issued (No. 2) P208,000
Fair value of net assets acquired from ME (No. 4) (130,000)
Goodwill 78,000
PTS: 1
6. ANS: B
Combined buildings and equipment P430,000
Book value of buildings & equipment - Narra (300,000)
Fair value of building & equipment - Yakal P130,000

Depreciation (P130,000 / 10 years) P 13,000

PTS: 1
7. ANS: D
15,600 shares were issued, computed as follows:
Par value of shares outstanding following merger P327,600
Paid-in capital following merger 650,800
Total par value and paid-in capital P978,400
Par value of shares outstanding before merger P218,400
Paid-in capital before merger 370,000
(588,400)
Increase in par value and paid-in capital P390,000
Divide by price per share ÷P25
Number of shares issued P15,600
PTS: 1
8. ANS: A
The par value is P7, computed as follows:

Increase in par value of shares outstanding

(P327,600-P218,400) P109,200
Divide by number of shares issued ÷ 15,600
Pay value per share P 7.00
PTS: 1
9. ANS: B
Goodwill of P34,000 was recorded, computed as follows:

Increase in par value and paid-in capital P390,000

Fair value of net assets (P476,000-P120,000) (356,000)
 11

Goodwill P 34,000
PTS: 1
10. ANS: A
Computation of Fair Value

Amount paid P517,000

Book value of assets P624,000
Book value of liabilities (356,000)
Book value of net assets P268,000
Adjustment for research and development costs (40,000)
Adjusted book value P228,000
Fair value of patent rights 120,000
Goodwill recorded 93,000 (441,000)
Fair value increment of buildings and equipment P 76,000
Book value of buildings and equipment 341,000
Fair value of buildings and equipment P417,000
PTS: 1
11. ANS: A
Acquisition cost:

Cash P200,000
Capital stock issued at fair value 330,000
Direct acquisition costs 70,000 P600,000
Less: Fair value of nhet identifiabl;e assets acquired:
Cash P40,000
Inventories 120,000
Property and equipment 280,000
Liabilities (70,000) 370,000
Goodwill P230,000
PTS: 1
12. ANS: C
Fair value of stock issued P2,550,000
Professional fees 25,000

Total acquisition costs P2,575,000

PTS: 1

13. ANS: B
Fair value of stock issued P2,550,000
Par value (120,000 shares x P10) 1,200,000
Additional paid in capital P1,350,000
Cost of SEC registration ( 12,000)
Cost printing and issuing stock certificates ( 3,000)
Additional paid in capital recorded P1,335,000
PTS: 1
14. ANS: D
Acquisition cost P2,575,000
Less: Fair value of net identifiable assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Difference P425,000
Overstatement of the fair value of plant assets 400,000
Income from acquisition P 25,000
PTS: 1
15. ANS: B
Current assets P1,100,000
Plant assets 1,800,000
Liabilities ( 300,000)
Net assets acquired P 2,600,00
PTS: 1
16. ANS: A
 12

Stockholders’ equity before combination - Pete P16,320,000

Capital stock issued (48,000xP100) P4,800,000
APIC (48,000xP75) 3,600,000
Costs to register and issue stock ( 50,000) 8,350,000
Stockholders’ equity after combination - Pete P24,670,000
PTS: 1
17. ANS: C
Acquisition cost P3,168.000
Less: Fair value of net identifiable assets acquired
Current assets P1,653,600
Property and equipment 1,248,000
Patents 338,000
Liabilities (171,600) 3,068,000
Goodwill P100,000

Total assets after combination:

GWAPO (P7,942,000-P3,168,000) P4,774,000
Acquired from GAWAPA (P3,239,600+P100,000) 3,339,600
Total assets P8,113,600
PTS: 1

18. ANS: B
Fair value of net identifiable assets acquired:
Current assets P 400,000
Property and equipment 1,600,000
Liabilities ( 400,000)
Net assets acquired P 1,600,000
Add: Goodwill 200,000
Acquisition cost P1,800,000
Divided by market value per share ÷ P 40
Number of shares to be issued P 45,000
PTS: 1
19. ANS: A
Stockholders’equity before combination - Par P23,000,000
Capital stock issued, at par (150,000x100) P15,000,000
Additional paid in capital (150,000x20) 3,000,000
Cost of SEC registration (100,000)
Indirect costs (expense) ( 50,000) 17,850,000
Stockholders’equity after combination - Par P40,850,000
PTS: 1
20. ANS: B
Acquisition cost P310,000
Less: Fair value of net identifiable assets
Current assets P180,000
Non-current assets 220,000
Liabilities (40,000) 360,000
Income for acquisition P(50,000)
PTS: 1
21. ANS: D
Acquisition cost P600,000
Less: Fair value of net identifiable assets
Cash P60,000
Inventory 150,000
Plant and equipment 380,000
Liabilities (120,000) 470,000
Goodwill P130,000
PTS: 1
22. ANS: C
Audit fee for SEC registration of stock issue P46,000
 13

Printing of stock certificates 11,000

Total debit to APIC P57,000
PTS: 1
23. ANS: C
Fair value of shares issued (100,000 x P36) P3,600,000
Direct acquisition costs (brokers’fee) 100,000
Contingent consideration 20,000
Total acquisition cost P3,720,000
Costs of registration and issuance of equity securities are treated as a deduction from equity (additional paid in capital).
PTS: 1
24. ANS: D
All assets acquired are to be recorded at fair values, therefore property and equipment is to be recorded at P110,000.
PTS: 1
25. ANS: C
Acquisition cost P800,000
Less: Fair value of net identifiable assets acquired
Cash P80,000
Inventory 190,000
Plant and equipment 560,000
Liabilities (180,000) 650,000
Goodwill P150,000
PTS:

26. ANS: B PTS: 1

27. ANS: C PTS: 1
28. ANS: D PTS: 1
29. ANS: B PTS: 1
30. ANS: B PTS: 1
31. ANS: C PTS: 1
32. ANS: A PTS: 1
33. ANS: A PTS: 1
34. ANS: B PTS: 1
35. ANS: A PTS: 1
36. ANS: C PTS: 1
37. ANS: D PTS: 1
38. ANS: A PTS: 1
39. ANS: B PTS: 1
40. ANS: B PTS: 1
41. ANS: D PTS: 1
42. ANS: C PTS: 1
43. ANS: A PTS: 1
44. ANS: C PTS: 1
45. ANS: C PTS: 1
46. ANS: C PTS: 1
47. ANS: C PTS: 1
48. ANS: C PTS: 1
49. ANS: C PTS: 1
50. ANS: C PTS: 1