Compute the Consolidated Total Liabilities on January 1, 2020.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Prateroon's asset has a book value of P10,460,00 and a fair market value of
P11,500,000 and the book value of its liabilities amounted to P3,250,000 and the
fair market value of P4,000,000.
On January 1, 2020 Prateroon Company purchased all the net assets of Stranemon Company consisting of:
> Issuance of 20,000 unissued shares of its P10 par value ordinary share capital. As of this date, the shares of
Prateroon were selling at P40 per share.
> Issuance of bonds with a face value of P300,000 but are currently at 110.
>A contingent payment of P200,000 cash on January 1, 2020, if the average income of Stranemon Company during
the two-year period (2020-2021) exceeds P250,000 per year. Prateroon estimates that there is a 20% chance or
probability that the P200,000 payment will be required.
> Issuance of 5,000 additional shares on January 1, 2022 to the former shareholders of Stranemon Company if the
average income cover the next two years (2020-2021) equalled or exceeded P350,000. The additional 5,000
shares expected to be issued are valued at P75,000.
Professional fees of P9,000 were also paid by Prateroon to its external auditors to finalize the business combination.
As of the date of acquisition, Stranemon Company reported the following book value and current market data:
Book
Book
Fair
Fair Value
Value
60,000
Value
Value
Cash
60,000 Accounts Payable
36,000 40,000
Inventory
Buildings, net
120,000
500,000
410,000
180,000 Ordinary Share Capital 720,000
560,000 Share Premium
440,000 Retained Eanings
164,000
170,000
Equipment, net
Compute the Consolidated Total Liabilities on January 1, 2020.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb49f415d-e866-4442-b635-764c97d70925%2F2c247cd0-4cea-4d47-ad02-39e290ffa793%2Fg1jol6_processed.png&w=3840&q=75)
Transcribed Image Text:Prateroon's asset has a book value of P10,460,00 and a fair market value of
P11,500,000 and the book value of its liabilities amounted to P3,250,000 and the
fair market value of P4,000,000.
On January 1, 2020 Prateroon Company purchased all the net assets of Stranemon Company consisting of:
> Issuance of 20,000 unissued shares of its P10 par value ordinary share capital. As of this date, the shares of
Prateroon were selling at P40 per share.
> Issuance of bonds with a face value of P300,000 but are currently at 110.
>A contingent payment of P200,000 cash on January 1, 2020, if the average income of Stranemon Company during
the two-year period (2020-2021) exceeds P250,000 per year. Prateroon estimates that there is a 20% chance or
probability that the P200,000 payment will be required.
> Issuance of 5,000 additional shares on January 1, 2022 to the former shareholders of Stranemon Company if the
average income cover the next two years (2020-2021) equalled or exceeded P350,000. The additional 5,000
shares expected to be issued are valued at P75,000.
Professional fees of P9,000 were also paid by Prateroon to its external auditors to finalize the business combination.
As of the date of acquisition, Stranemon Company reported the following book value and current market data:
Book
Book
Fair
Fair Value
Value
60,000
Value
Value
Cash
60,000 Accounts Payable
36,000 40,000
Inventory
Buildings, net
120,000
500,000
410,000
180,000 Ordinary Share Capital 720,000
560,000 Share Premium
440,000 Retained Eanings
164,000
170,000
Equipment, net
Compute the Consolidated Total Liabilities on January 1, 2020.
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