Reference no: EM133174122
Question 1 - The stockholders' equities of A Corporation and B Corporation at January 1, 2007 were as follows:
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A
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B
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Capital Stock, P10 par
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P2,625,000
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P1,400,000
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Additional paid-in-capital
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350,000
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700,000
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Retained earnings
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1,050,000
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525,000
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Stockholders' equity
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P4,025,000
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P2,625,000
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On January 2, 2007, A issued 38,500 shares with a market value of P72 per share for all of B's shares, and B was dissolved. On the same day, A paid P175,500 to register and issue the shares and P247,600 for indirect costs of combination.
Compute the stockholders' equity section of A Corporation's balance sheet immediately after the business combination on January 2, 2007.
Question 2 - Balance sheets reflecting uniform accounting procedures, as well as fair values, that are to be used as a basis for the combination are prepared on September 1, 2007 as follows:
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A
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B
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C
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Assets
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P5,250,000
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P6,800,000
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P900,000
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Liabilities
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P3,950,000
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P2,650,000
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P530,000
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Capital stock (P10 par)
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1,700,000
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1,200,000
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275,000
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Additional paid-in-capital
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500,000
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140,000
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Retained earnings (deficit)
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(400,000)
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2,450,000
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(45,000)
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Total Liabilities and Stockholders' Equity
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P5,250,000
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P6,800,000
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P900,000
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A Company shares have a market price of P16. A market price is not available for shares of B Company and C Company since stocks of these companies are closely held. A Company acquires all of the assets and assumes all of the liabilities of B and C Company by issuing in exchange 265,000 shares of its stock to B Company and 17,000 shares of its stock to C Company.
How much is the increase in capital stock as a result of the business combination?
How much is the retained earnings (deficit) immediately after the business combination?
Question 3 - JKL Company merged into LMN Company on June 30, 2007. In exchange for the net assets at fair value of JKL Co. amounting to P7,487,200, LMN issued 172,000 common shares at P29 par value, then going at a market price of P43 per share. Relevant data on stockholders' equity immediately before the combination show:
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LMN
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JKL
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Common stock
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P9,350,000
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P3,580,000
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APIC
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4,022,000
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1,624,000
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Retained earnings (deficit)
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(1,016,000)
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859,000
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Out of pocket costs of the combination as follows:
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Legal fees:
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For contract of business combination
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P49,000
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For SEC registration
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32,500
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Accounting fees for SEC registration
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20,200
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Printing costs of stock certificates
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11,100
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Finder's fees
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29,000
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CPA audit fees for SEC registration
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36,400
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Accountant's fee for pre-acquisition audit
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22,000
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Other indirect costs
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7,800
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Contingent consideration (probable and can be reasonably estimated)
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10,600
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General and allocated expenses
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13,900
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Listing fees in issuing new shares
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16,000
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What amount should LMN capitalize as the cost of acquiring JKL's net assets?
How much is the stockholders' equity immediately following the business combination?
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