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Bats Inc: Preferred Stock and Goodwill Analysis

Bats Inc is formed from the consolidation of II Inc and JJ Inc. Bats will issue 10% participating preferred stock with a par value of P100 for the net assets of II and JJ. Common stock with a par value of P50 will be issued for the difference between total shares and preferred shares. Total shares issued will equal the average annual earnings of II and JJ capitalized at 10%. Based on the financial data provided, the correct answer is a) 8,640 preferred shares and P288,000 goodwill.

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248 views1 page

Bats Inc: Preferred Stock and Goodwill Analysis

Bats Inc is formed from the consolidation of II Inc and JJ Inc. Bats will issue 10% participating preferred stock with a par value of P100 for the net assets of II and JJ. Common stock with a par value of P50 will be issued for the difference between total shares and preferred shares. Total shares issued will equal the average annual earnings of II and JJ capitalized at 10%. Based on the financial data provided, the correct answer is a) 8,640 preferred shares and P288,000 goodwill.

Uploaded by

sonly amatosa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

8.

Bats Inc, a new corporation formed and organized because of the recent consolidation of II Inc, and JJ
Inc., shall issue 10% participating preferred stocks with a par value of P100 for II and JJ net assets
contribution, and common shares with a par value of P50 for the difference between the total shares to be
issued and the preferred shared issued. The total shares to be issued by Bats shall be equivalent to
average annual earnings capitalized at 10%. Relevant data on II and JJ follows:

II JJ
Total assets P720,000 P921,600
Total liabilities 432,000 345,600
Annual earnings(average) 46,080 69,120

The total preferred shares to be issued and the amount of goodwill to be recognized by Bats are:

a. Preferred shares: 8,640 Goodwill: P288,000


b. Preferred shares: 5,760 Goodwill: P288,000
c. Preferred shares: 2,880 Goodwill: P864,000
d. Preferred shares: 7,280 Goodwill: P864,000

ANSWER: A

II JJ TOTAL
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at 10%
Total stock to be issued P1,152,000
Goodwill (for Common Stock) 864,000

Preferred stock (same with Net


Assets):
864,000/P100 par 8,640 shares

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