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Question - Companies A and B decide to consolidate. Asset and estimated annual earnings contributions are as follows:
Co. A
Co. B
Total
Net Asset Contribution
P300,000
P400,000
P700,000
Estimated Annual Earnings Contribution
50,000
80,000
130,000
Shareholders of the two companies agree that a single class of shares be issued, that their contributions be measured by net assets plus allowances for goodwill, and that 10% be considered as a normal rate of return. Earnings in excess of the normal rate of return shall be capitalized at 20% in calculating goodwill. It was also agreed that the authorized capital stock of the new corporation shall be 20,000 shares with a par value of P100 per share.
Required - Compute the amount of goodwill credited to Co. A, and the total contribution of Co. B (net assets plus goodwill)?
a. P100,000; P400,000
b. P100,000; P600,000
c. P150,000; P500,000
d. P200,000, P600,000
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