NAME:
SECTION: DATE:
CASE 1-1
On December 31, 2020, Angel Corporation enters into a business combination by acquiring the assets and
assumed the liabilities of Santa Corporation in which Santa Corporation will be dissolved. Angel
Corporation’s consideration transferred consists of the following:
a. 25,000 unissued shares of its Php10 par common stock with a market value of Php25 per
share;
b. Php150,000 in long-term 8% notes payable, and
c. A contingent payment of Php100,000 cash on January 1, 2023, if the average income during
the 2-year period of 2021 – 2022 exceeds Php250,000 per year. Angel Company estimates
that there is a 30% percent chance or probability that the Php100,000 payment will be
required.
In addition, Angel Company pays the following at the time of the merger:
Finders’ fee – Php10,000
Accounting fees – Php20,000
Legal fees to arrange the business combination – Php35,000
Cost of SEC registration, including accounting and legal fees – Php15,000
Cost of printing and issuing stock certificates – Php12,000
Indirect costs of combining, including allocated overhead and executive salaries – Php23,000
Balance sheet and fair value information for the two companies on December 31, 2020, immediately
before the merger, are as follows:
ANGEL SANTA
Book
Book Value Fair Value Value Fair Value
230,000.0 230,000.0 20,000.0 20,000.0
Cash 0 0 0 0
80,000.0 80,000.0 40,000.0 40,000.0
Receivables - net 0 0 0 0
240,000.0 300,000.0 100,000.0 60,000.0
Inventories 0 0 0 0
90,000.0 200,000.0 60,000.0 200,000.0
Land 0 0 0 0
400,000.0 600,000.0 200,000.0 300,000.0
Buildings - net (10 years life) 0 0 0 0
360,000.0 490,000.0 180,000.0 250,000.0
Equipment - net (5 year life) 0 0 0 0
50,000.0
In=process research and development - - - 0
1,400,000.0 1,900,000.0 600,000.0 920,000.0
Total Assets 0 0 0 0
180,000.0 180,000.0 60,000.0 60,000.0
Accounts payable 0 0 0 0
Other liabilities 200,000.0 180,000.0 120,000.0 140,000.0
0 0 0 0
600,000.0 200,000.0
Common stock, Php10 par 0 0
200,000.0 160,000.0
Additional paid-in capital 0 0
220,000.0 60,000.0
Retained earnings 0 0
1,400,000.0 600,000.0
Total Liabilities and Equities 0 - 0 -
QUESTION 1:
SHOW COMPUTATION OF GOODWILL.
ANSWER:
Consideration transferred;
Common shares:(25,000 shares x P250 ₱ 625,000.00
Notes payable 150,000.00
Contingent consideration (cash contingency)
P100,000x30% 30,000.00
Total ₱ 805,000.00
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash ₱ 20,000.00
Receivables-net 40,000.00
Inventories 60,000.00
Land 200,000.00
Buildings-net 300,000.00
Equipment-net 250,000.00
In-process research and development 50,000.00
Accounts payable (60,000.00)
Other liabilities (140,000.00) 720,000
Positive Excess - Goodwill ₱ 85,000.00
QUESTION 2:
SHOW JOURNAL ENTRIES BY ANGEL CORPORATION TO RECORD THE ACQUISITION.
ANSWER:
Cash ₱ 20,000.00
Receivables- net 40,000.00
Inventories 60,000.00
Land 200,000.00
Buildings- net 300,000.00
Equipment- net 250,000.00
In-process research and development 50,000.00
Goodwill 85,000.00
Accounts payable ₱ 60,000.00
Other Liabilities 140,000.00
Notes payable 150,000.00
Estimated Liability for Contingent Consideration 30,000.00
Common stock (P10 par x 25,000 shares) 250.00
Paid-in capital in excess of par
[(P25-P100)x 25,000] 375,000.00
Acquisition of Santa Company.
Acquisition- related expenses 65,000.00
Cash 65,000.00
Acquisition related cost- direct costs.
Paid-in capital in excess of par 27,000.00
Cash 27,000.00
Acquisition related cos- cost to issue and
register stocks.
Acquisition-related expenses
Cash 23,000.00
Acquisition related costs- indirect costs. 23,000.00
QUESTION 3:
SHOW BALANCE SHEET OF ANGEL CORPORATION IMMEDIATELY AFTER THE
ACQUISITION.
ANSWER:
Angel Corporation
Balance Sheet
December 31, 2020
Assets
Cash ₱ 135,000.00
Receivables- net 120,000.00
Inventories 300,000.00
Land 290,000.00
Buildings- net 700,000.00
Equipment-net 610,000.00
In- process research and development 50,000.00
Goodwill 85,000.00
Total Assets ₱ 2,290,000.00
Liabilities and stockholders’ Equity
Liabilities
Accounts payable ₱ 240,000.00
Other Liabilities 340,000.00
Notes Payable 150,000.00
Estimated liability for contingent consideration 30,000.00
Total Liabilities 760,000.00
Stockholders’ Equity
Common stock, P10 par 850,000.00
Paid-in capital in excess of par 548,000.00
Retained Earnings 132,000.00
Total Stockholders’ Equity 1,530,000.00
Total Liabilities and stockholders’ Equity ₱ 2,290,000.00
CASE 1-2
Assume that the value of the buildings in CASE 1-1 was provisionally determined on December 31,
2020. On August 31, 2021, Angel Corporation received the final value from the independent appraisal,
the fair value at acquisition date being Php320,000.
QUESTION 4:
WHAT IS THE ENTRY ON AUGUST 1, 2020, TO REFLECT THE ADJUSTMENT TO
GOODWILL CONSIDERING THAT IT IS STILL WITHIN THE MEASUREMENT PERIOD
OF ONE (1) YEAR?
ANSWER:
Buildings ₱ 20,000.00
Goodwill ₱ 20,000.00
Adjustment to goodwill due to measurement date.
Case 1-3
Assume the information in CASE 1-1 and that on August 31, 2021, because of improved information
about facts and circumstances that exist on the (as of the) acquisition date, the contingent consideration
was revised to an expected/ probability value of Php50, 000.
QUESTION 5:
HOW MUCH IS THE GOODWILL TO BE REPORTED ON THE ACQUISITION? WHAT IS
THE ENTRY TO ADJUST GOODWILL AND ESTIMATED LIABILITY FOR CONTINGENT
CONSIDERATION ON AUGUST 31, 2021?
ANSWER:
THE GOODWILL TO BE REPORTED ON THE ACQUISITION = ₱ 105,000.00
Goodwill ₱ 20,000.00
Estimated liability for contingent consideration ₱ 20,000.00
Adjustment to goodwill due to measurement date.
