PROBLEM NO.

CASE 1: Purchase Price (Consideration Transferred) 3 000 000

Less: FV of net identifiable assets acquired (2 360 000) 3 200 000 – 40 000 – 800 000
GOODWILL 640 000

JOURNAL ENTRY

Cash 20 000
Receivables 240 000
Inventory 700 000
Building 2 200 000
Goodwill 640 000
Payables 800 000
Cash 3 000 000

CASE 2: Purchase Price (Consideration Transferred) 2 000 000

Less: FV of net identifiable assets acquired (2 360 000) 3 200 000 – 40 000 – 800 000
GAIN ON BARGAIN PURCHASE (360 000)

JOURNAL ENTRY

Cash 20 000
Receivables 240 000
Inventory 700 000
Building 2 200 000
Payables 800 000
Cash 2 000 000
Income 360 000

PROBLEM NO. 2

Purchase Price (Consideration Transferred) 1 000 000 800 000 + 200 000
Less: FV of net identifiable assets acquired (710 000) 350 000 + 810 000 – 450 000
GOODWILL 290 000

JOURNAL ENTRY

Current Assets 350 000

Plant Assets 810 000
Goodwill 290 000
Liabilities 450 000
Stock (100 000 shares × 1) 100 000
Share Premium/APIC (100 000 shares × 7) 700 000
Contingent Consideration Payable 200 000

PROBLEM NO. 3

REQUIREMENT 1: GOODWILL
Purchase Price (Consideration Transferred) 22 400 000 18 000 000 + 4 000 000 + 400 000
Less: FV of net identifiable assets acquired (15 880 000)
GOODWILL 6 520 000

FV of total assets 51 280 000

Brand names 5 000 000
Secret formula 7 000 000
Current liabilities (400 000)
Long-term liabilities (47 000 000)
FV of net identifiable assets acquired 15 880 000
JOURNAL ENTRY

Cash 90 000
Receivables 190 000
Inventories 7 000 000
Plant and equipment 40 000 000
Trademarks 4 000 000
Brand names 5 000 000
Secret formulas 7 000 000
Goodwill 6 520 000
Current liabilities 400 000
Long-term liabilities 47 000 000
Cash 18 000 000
Stock (50 000 shares × 2) 100 000
Share Premium/APIC (50 000 shares × 78) 3 900 000
Contingent Consideration Payable 400 000

REQUIREMENT 2: GAIN ON BARGAIN PURCHASE

Purchase Price (Consideration Transferred) 22 400 000 18 000 000 + 4 000 000 + 400 000
Less: FV of net identifiable assets acquired (25 880 000)
GAIN ON BARGAIN PURCHASE (3 480 000)

FV of total assets 51 280 000

Brand names 5 000 000
Secret formula 7 000 000
Noncompetition agreement 10 000 000
Current liabilities (400 000)
Long-term liabilities (47 000 000)
FV of net identifiable assets acquired 25 880 000

JOURNAL ENTRY

Cash 90 000
Receivables 190 000
Inventories 7 000 000
Plant and equipment 40 000 000
Trademarks 4 000 000
Brand names 5 000 000
Secret formulas 7 000 000
Noncompetition agreement 10 000 000
Current liabilities 400 000
Long-term liabilities 47 000 000
Cash 18 000 000
Stock (50 000 shares × 2) 100 000
Share Premium/APIC (50 000 shares × 78) 3 900 000
Contingent Consideration Payable 400 000
Retained Earnings 3 480 000
Consolidated Assets
Acquirer @ BV 151 500 000
Acquiree @ FV 63 280 000
Goodwill 6 520 000
PP in the form of assets (18 000 000)
Acquisition Related Cost (1 600 000)
TOTAL 201 700 000

Consolidated Liabilities
Acquirer @ BV 70 500 000
Acquiree @ FV 47 400 000
Contingent Consideration Payable 400 000
TOTAL 118 300 000

Consolidated Cash
Cash Acquirer 25 000 000
Cash Acquiree 90 000
Acquisition Related Cost if paid (1 600 000)
PP in the form of cash (18 000 000)
TOTAL 5 490 000

Consolidated Shares @ Par

Shares Acquirer BV 2 000 000
New shares issued by acquirer 100 000 50 000 shares × 2
TOTAL 2 100 000

Consolidated Additional Paid-In Capital (APIC)

APIC Acquirer BV 55 000 000
APIC New 3 900 000 50 000 shares × 78
Cost to Issue and to Register (500 000)
TOTAL 58 400 000

Consolidated Retained Earnings

Retained Earnings Acquirer 25 000 000
Acquisition Related Cost (1 100 000)
TOTAL 23 900 000

Consolidated Shareholders Equity

Shares 2 100 000
Additional Paid-In Capital 58 400 000
Retained Earnings 23 900 000
TOTAL 84 400 000

REQUIREMENT 3: BALANCE SHEET

Balance Sheet 1
Assets Liabilities and Shareholder’s Equity
Cash 5 490 000 Current liabilities 900 000
Receivables 2 190 000 Long-term liabilities 117 000 000
Inventories 27 000 000 Contingent Consideration Payable 400 000
Plant and equipment 139 500 000
Trademarks 9 000 000 Common Stocks 2 100 000
Brand names 5 000 000 Share Premium/APIC 58 400 000
Secret formula 7 000 000 Retained Earnings 23 900 000
Goodwill 6 520 000 Treasury Shares (1 000 000)
TOTAL ASSETS 201 700 000 TOTAL LIABILITIES AND SHE 201 700 000
COMPUTATION OF CASH
Beginning Balance 25 000 000
Cash Payment (18 000 000)
Acquisition Related Cost (1 600 000)
Jaramillo Co. Cash @ FV 90 000
TOTAL 5 490 000

Balance Sheet 2
Assets Liabilities and Shareholder’s Equity
Cash 5 490 000 Current liabilities 900 000
Receivables 2 190 000 Long-term liabilities 117 000 000
Inventories 27 000 000 Contingent Consideration Payable 400 000
Plant and equipment 139 500 000
Trademarks 9 000 000 Common Stocks 2 100 000
Brand names 5 000 000 Share Premium/APIC 58 400 000
Secret formula 7 000 000 Retained Earnings 27 380 000
Noncompetition agreement 10 000 000 Treasury Shares (1 000 000)
TOTAL ASSETS 205 180 000 TOTAL LIABILITIES AND SHE 205 180 000

COMPUTATION OF RETAINED EARNINGS

Consolidated Retained Earnings 23 900 000
Gain on Bargain Purchase 3 480 000
TOTAL 27 380 000

REQUIREMENT 4:

Balance Sheet 1

a) Total Assets: 201 700 000

b) Total Liabilities: 118 300 000

c) Additional Paid-In Capital (SP): 58 400 000

d) Retained Earnings: 23 900 000

e) Shareholder’s Equity: 83 400 000

Balance Sheet 2

a) Total Assets: 205 180 000

b) Total Liabilities: 118 300 000

c) Additional Paid-In Capital (SP): 58 400 000

d) Retained Earnings: 27 380 000

e) Shareholder’s Equity: 86 880 000