Here are the pre-acquisition balance sheets of POP Company and Sicle Company on December 31, 20x5: Pop Co. Sicle Co. Book Value Book Value Market Values Current assets P 5,000,000 P 2,000,000 P 1,500,000 Investments 1,000,000 500,000 500,000 Land 10,000,000 5,000,000 6,000,000 Buildings (net) 40,000,000 25,000,000 16,000,000 Equipment (net) 25,000,000 10,000,000 2,000,000 Total assets P 81,000,000 P 42,500,000 Current liabilities P 4,000,000 P 1,500,000 1,500,000 Long-term liabilities 20,000,000 10,000,000 12,000,000 Common stocks, P10 par 5,000,000 1,000,000 Additional paid-in capital 40,000,000 20,000,000 Retained earnings 12,000,000 10,000,000 Total liabilities & equity P 81,000,000 P 42,500,000 In addition to the above Sicle Co. has identifiable tangibles with a fair value of P5,000,000 not recognize on its book but appropriately capitalize by Pop. On January 1, 20x6 Pop issues 400,000 shares of its stock, with a par value of P10/share and a market value of 100/share, to acquire Sicle Company’s assets and liabilities. Stock registration fees are P1,100,000, paid in cash. Required: 1. Present the journal entry that Pop makes to record the acquisition. 2. In relation to no. 1 requirement, determine the following: (a) total assets; (b) liabilities; (c) additional paid-in capital (share premium); (d) retained earnings (accumulated profit or loss); and (e) stockholders’ equity;
Here are the pre-acquisition
December 31, 20x5:
Pop Co. Sicle Co.
Book Value Book Value Market Values
Current assets P 5,000,000 P 2,000,000 P 1,500,000
Investments 1,000,000 500,000 500,000
Land 10,000,000 5,000,000 6,000,000
Buildings (net) 40,000,000 25,000,000 16,000,000
Equipment (net) 25,000,000 10,000,000 2,000,000
Total assets P 81,000,000 P 42,500,000
Current liabilities P 4,000,000 P 1,500,000 1,500,000
Long-term liabilities 20,000,000 10,000,000 12,000,000
Common stocks, P10
par 5,000,000 1,000,000
Additional paid-in
capital 40,000,000 20,000,000
Retained earnings 12,000,000 10,000,000
Total liabilities &
equity P 81,000,000 P 42,500,000
In addition to the above Sicle Co. has identifiable tangibles with a fair value of P5,000,000
not recognize on its book but appropriately capitalize by Pop.
On January 1, 20x6 Pop issues 400,000 shares of its stock, with a par value of P10/share and
a market value of 100/share, to acquire Sicle Company’s assets and liabilities. Stock
registration fees are P1,100,000, paid in cash.
Required:
1. Present the
2. In relation to no. 1 requirement, determine the following: (a) total assets; (b)
liabilities; (c) additional paid-in capital (share premium); (d) retained earnings
(
3. With the same requirements of (1) and (2) above, but now assume Pop instead
issued 100,000 shares of stocks for Sicle’s assets and liabilities, and registration cost
are P800,000, paid in cash.
4. Now assume that Pop issues 100,000 shares for all of Sicle’s shares, as in
requirement above, and Pop agrees to pay cash to Salt’s previous owners if the
combined earnings of Pepper and Salt exceed a certain threshold over the next 2
years. The expected value of the earnings contingency is P8,000,000. Prepare Pop’s
acquisition entry.
5. Assume the facts as in requirements (3). Before the contingency period is over, the
estimated value of the earnings contingency declines to P5,000,000, Prepare Pop’s
entry to reflect the change in value ]of the earnings contingency, if
(a) The value decline occurs with the measurement period i.e. June 30, 20x6, then
the amount further declines by P200,000 on August 1, 20x6;
(b) The value is due to events occurring subsequent acquisition.
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