Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent. To Explain : Journal entries that P should have entered on its books to record the business combination.

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Answer 1

Question

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

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Students have asked these similar questions

On January 1, 2018, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. PNB paid acquisition related cost of business combination amounting to P100,000 and stock issuance cost amounting to P200,000. As of December 31, 2017, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. The amount net assets of Allied Bank on December 31, 2017 is P2.6M. What is the amount of total assets of PNB on January 1, 2018 after the merger? Group of answer choices 54,100,000 64,100,000 65,100,000 55,100,000

On January 1, 2018, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. PNB paid acquisition related cost of business combination amounting to P100,000 and stock issuance cost amounting to P200,000. As of December 31, 2017, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. The amount net assets of Allied Bank on December 31, 2017 is P2.6M. What is the goodwill/(gain on bargain purchase) arising from business combination? Group of answer choices 400,000 (600,000) 600,000 800,000

What is the amount of total assets of PNB on january 1, 2018 after the merger?

Answer 2

Question

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

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Answer 3

Question

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

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Answer 4

Question

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

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Answer 5

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

Answer 6

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

Answer 7

Chapter 1, Problem 1.40P

a.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that P should have entered on its books to record the business combination.

Answer 8

a.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit ($)	Credit ($)
Merger Expense	135,000
To Cash		135,000
(Being legal fees paid.)

Deferred Stock Issue Cost	42,000
To Cash		42,000
(Being common stock purchased.)

Cash	28,000
Accounts Receivable	251,500
Inventory	395,000
Long Term Investments	175,000
Land	100,000
Rolling Stock	63,000
Plant and Equipment	2,500,000
Patents	500,000
Special Licenses	100,000
Discount on Equipment trust notes	5,000
Discount on Debentures	50,000
Goodwill	109,700
To Current Payables		137,200
To Mortgages Payable		500,000
To Premium on Mortgages Payable		20,000
To Equipment Trust Notes		100,000
To Debentures Payable		1,000,000
To Common Stock		180,000
To Additional Paid-in capital		2,298,000
To Deferred Stock Issue Costs		42,000
(Being legal fees paid)
Total	4454200	4454200

Computation of Goodwill:

Value of stock issued: ($14×180,000)=$2,520,000

Fair value of assets acquired: $4,112,500

Fair value of liabilities acquired: ($1,702,200)

Goodwill: $2,520,500+$1,702,200−$4,112,500=$109,700

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700

Common Stock 1,500shares×$5=$7,500

Additional paid in capital

$12,000−$7,500=$4,500

Answer 13

b.

To determine

Concept Introduction:

Business Combination: It is a process where two entities combine their assets and liabilities to form a new third entity to take up the benefit of synergies with legal consent.

To Explain: Journal entries that should have been entered on S’s books to record the combination and the distribution of the stock received.

Answer 14

b.

Expert Solution

Explanation of Solution

Following journal entry would be recorded:

Particular	Debit	Credit
Investment account	2,520,000
Allowance for bad debts	6,500
Accumulated Depreciation	614,000
Current Payables	137,200
Mortgages payable	500,000
Equipment Trust Notes	100,000
Debentures Payable	1,000,000
To Discount on Debentures Payables		40,000
To Cash		28,000
To Accounts Receivable		258,000
To Inventory		381,000
To Long Term Investments		150,000
To Land		55,000
To Rolling Stock		130,000
To Plant and Equipment		2,425,000
To Patents		125,000
To Special Licenses		95,800
To Gain on sale of assets and liabilities		1,189,900
(Being asset purchased.)

Common Stock	7,500
Additional paid in Capital-common stock	4,500
To Treasury Stock		12,000
(Being common stock purchased.)

Common Stock	592,500
Additional Paid-in Capital-Common	495,500
Additional Paid-in Capital-Retirement Preferred	22,000
Retained Earnings	1,410,000
To Investment account		2,520,000
(Being purchase of common stock.)
Total	7409700	7409700