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Buscom Sample Prob

PP Corporation acquired the assets and liabilities of SS Corporation in exchange for 25,000 shares of common stock, $150,000 in long-term notes payable, and a contingent payment of $100,000 if certain income thresholds are met. PP also incurred $115,000 in acquisition costs. The balance sheets of PP and SS as of the acquisition date are provided.

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154 views2 pages

Buscom Sample Prob

PP Corporation acquired the assets and liabilities of SS Corporation in exchange for 25,000 shares of common stock, $150,000 in long-term notes payable, and a contingent payment of $100,000 if certain income thresholds are met. PP also incurred $115,000 in acquisition costs. The balance sheets of PP and SS as of the acquisition date are provided.

Uploaded by

Joresol Alorro
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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On Dec.

31, 20x4, PP Corporation enters into a business combination by acquiring the assets and assumed the liabilities
of SS Corporation in which SS Corp. will be dissolved. PP’s consideration transferred consist of the ff:
- 25,000 unissued shares of its P10 par common stock, with MV of P25.
- P150,000 in long term 8% notes payable, and
- a contingent payment of P100,000 on Jan. 1, 20x7, if the average income of during the 2-year period of 20x5
and 20x6 exceeds P250,000 per year. PP estimates that there is a 30% chance or probability that the P100,000
payment will be required.

In addition, PP pays the ff at the time of merger:


- finder’s fee P10,000
- accounting fees P20,000
- legal fees to arrange the buscom P35,000
- cost of SEC registration of stocks, including legal fees P15,000
- cost of printing and issuing stocks certificate P12,000
- indirect cost of combining including executive salaries and overhead P23,000

Balance sheet and FV information for the 2 corporations on Dec. 31, 20x4, immediately before the merger are as
follows:

PP SS
BV FV BV FV
Cash 230,000 230,000 20,000 20,000
AR-net 80,000 80,000 40,000 40,000
Inventories 240,000 300,000 100,000 60,000
Land 90,000 200,000 60,000 200,000
Buildings – net (10 year) 400,000 600,000 200,000 300,000
Equipment – net (5 yr) 360,000 490,000 180,000 250,000
In-process R&D 0 0 0 50,000
AP 180,000 180,000 60,000 60,000
Other Liabilities 200,000 180,000 120,000 140,000
Common stock at par 600,000 200,000
APIC 200,000 160,000
RE 220,000 60,000

REQUIRED:

1. Goodwill or gain

2. Entries by PP Corporation to record the acquisition…

3. The balance of the ff. immediately after the acquisition:

1. Cash
2. Goodwill (if there is any)
3. APIC in excess of Par
4. Retained Earnings

4. Construct PP Corporation Balance Sheet as December 31, 20x4

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