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    Sample Problem

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    Zaldy Magante Malasaga
    On January 1, 2020, Lettuce Co. acquired all of Spinach Corp.'s assets and liabilities by paying $1,380,000. Lettuce Co. also incurred $50,000 in acquisition costs. Lettuce Co. prepared journal entries to record the acquisition as a net asset purchase, closed Spinach Corp.'s books, and prepared a combined balance sheet showing assets of $13,400,000 and liabilities/equity of $13,400,000, including $80,000 of goodwill.

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    Sample Problem

    Uploaded by

    Zaldy Magante Malasaga
    124 views3 pages
    On January 1, 2020, Lettuce Co. acquired all of Spinach Corp.'s assets and liabilities by paying $1,380,000. Lettuce Co. also incurred $50,000 in acquisition costs. Lettuce Co. prepared journal entries to record the acquisition as a net asset purchase, closed Spinach Corp.'s books, and prepared a combined balance sheet showing assets of $13,400,000 and liabilities/equity of $13,400,000, including $80,000 of goodwill.

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    Sample Problem (1) (1)

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    On January 1, 2020, Lettuce Co. acquired all of Spinach Corp.'s assets and liabilities by paying $1,380,000. Lettuce Co. also incurred $50,000 in acquisition costs. Lettuce Co. prepared journal entries to record the acquisition as a net asset purchase, closed Spinach Corp.'s books, and prepared a combined balance sheet showing assets of $13,400,000 and liabilities/equity of $13,400,000, including $80,000 of goodwill.

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    Download as docx, pdf, or txt
    124 views3 pages

    Sample Problem

    Uploaded by

    Zaldy Magante Malasaga
    On January 1, 2020, Lettuce Co. acquired all of Spinach Corp.'s assets and liabilities by paying $1,380,000. Lettuce Co. also incurred $50,000 in acquisition costs. Lettuce Co. prepared journal entries to record the acquisition as a net asset purchase, closed Spinach Corp.'s books, and prepared a combined balance sheet showing assets of $13,400,000 and liabilities/equity of $13,400,000, including $80,000 of goodwill.

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    of 3

    On January 1, 2020, Lettuce Co. acquired all the assets and assumed all the liabilities of Spinach Corp.

    by paying P1,380,000. Lettuce Co. paid


    acquisition related cost of the combination totaling P50,000 on that date. The balance sheet of Spinach and Lettuce at book value and fair market
    values are as follows:
    Spinach Lettuce
    Book Value Fair Value Book Value Fair Value
    Cash P 150,000 P 150,000 P2,500,000 P2,500,000
    Inventory 420,000 500,000 500,000 400,000
    Buildings and Equipment 600,000 750,000 9,700,000 10,500,000
    Patents 150,000 150,000 500,000 400,000
    Total Assets P1,320,000 P1,550,000 P13,200,000 P13,800,000

    Accounts Payable P 250,000 P250,000 P 800,000 P 800,000


    Ordinary shares 600,000 2,500,000
    Share Premium 200,000 7,000,000
    Retained Earnings 270,000 2,900,000
    Total Liabilities and Equities P1,320,000 P13,200,000
    1. Prepare the following immediately after the acquisition:
    a. Journal entry on Lettuce Co.’s books to record the acquisition of Spinach Corp.
    b. Close the books of Spinach Corp..
    c. Balance Sheet of Lettuce Co.
    2. Prepare the following immediately after the acquisition assuming that Lettuce purchased 100% interest of Spinach Corp.
    a. Journal entry on Lettuce Co.’s books to record the acquisition of Spinach Corp.
    b. Elimination Entry
    c. Consolidated Balance Sheet immediately after the business combination.

    1. NET ASSET ACQUISITION supporting computations:


    Consideration given P1,380,000
    a. LETTUCE COMPANY FV of NET ASSETS (1,550,000-250,000) 1,300,000
    Goodwill P 80,000
    (1) CASH 150,000
    INVENTORY 500,000
    BUILDINGS & EQUIPMENT 750,000
    PATENTS 150,000
    GOODWILL 80,000
    ACCOUNTS PAYABLE 250,000
    CASH 1,380,000

    (2) RETAINED EARNINGS 50,000


    CASH 50,000

    b. SPINACH CORPORATION (closing of books)

    (1) CASH 1,380,000


    ACCOUNTS PAYABLE 250,000
    CASH 150,000
    INVENTORY 420,000
    BUILDINGS & EQUIPMENT 600,000
    PATENTS 150,000
    GAIN ON SALE 310,000

    (2) ORDINARY SHARE 600,000


    SHARE PREMIUM 200,000
    RETAINED EARNINGS 270,000
    GAIN ON SALE 310,000
    CASH 1,380,000
    WORKING PAPER

    Accounts Lettuce(BV) Spinach(FV) Combined


    Cash P2,500,000 P150,000 P1,220,000 *
    Inventory 500,000 500,000 1,000,000
    Buildings & Equipment 9,700,000 750,000 10,450,000
    Patents 500,000 150,000 650,000
    Goodwill 80,000
    Total P13,200,000 P1,550,000 P13,400,000

    Accounts payable P 800,000 P 250,000 P 1,050,000


    Ordinary shares 2,500,000 2,500,000
    Share Premium 7,000,000 7,000,000
    Retained earnings 2,900,000 2,850,000**
    Total P13,200,000 P13,400,000

    *(2,500,000+150,000-1,380,000-50,000)
    ** (2,900,000-50,000)

    c.

    LETTUCE COMPANY
    COMBINED STATEMET OF FINANCIAL POSITION
    JANUARY 1, 2020

    ASSETS LIABILITIES AND OWNERS EQUITY

    CASH P1,220,000 ACCOUNTS PAYABLE P1,050,000


    INVENTORY 1,000,000 ORDINARY SHARE 2,500,000
    BUILDINGS & EQUIPMENT 10,450,000 SHARE PREMIUM 7,000,000
    PATENTS 650,000 RETAINED EARNINGS 2,850,000
    GOODWILL 80,000
    TOTAL ASSETS 13,400,000 TOTAL LIAB & EQUITY P13,400,000

    COMPLETE GUIDE IN SOLVING NET ASSET ACQUISITION PROBLEM (COMBINED BALANCE SHEET)

    COMBINED ASSET
    + ACQUIRER (BV)
    + ACQUIRED (FV)
    +GOODWILL
    -CASH PAID (CONSIDERATION GIVEN & ACQUISITION RELATED COST)

    COMBINED LIABILITIES
    + ACQUIRER (BV)
    + ACQUIRED (FV)
    +CONTINGENT LIABILITIES
    +DEBT SECURITY ISSUED

    ORDINARY SHARES
    +ACQUIRER
    +SHARES ISSUED AT PAR

    SHARE PREMIUM
    +ACQUIRER
    +SHARES ISSUED ABOVE PAR
    -COST TO REGISTER SHARES

    RETAINED EARNINGS
    +ACQUIRER
    +NEGATIVE GOODWILL
    -ACQUISITION RELATED COST (DIRECT & INDIRECT COST)
    2. STOCK ACQUISITION

    a. Investment in Spinach Corp. 1,380,000


    Cash 1,380,000

    Retained Earnings 50,000


    Cash 50,000

    b. Elimination entry

    Inventory 80,000
    Buildings & eqpmnt 150,000
    Goodwill 80,000
    Ordinary shares 600,000
    Share premium 200,000
    Retained earnings 270,000
    Investment in Spinach Corp. 1,380,000

    WORKING PAPER
    Elimination Entry
    Accounts Lettuce(BV) Spinach(FV) Dr. ____ Cr. Consolidated BS
    Cash *P1,070,000 P150,000 P P1,220,000
    Investment in Spinach 1,380,000 P1,380,000 -
    Inventory 500,000 420,000 80,000 1,000,000
    Buildings & Equipment 9,700,000 600,000 150,000 10,450,000
    Patents 500,000 150,000 650,000
    Goodwill 80,000 80,000
    Total P13,150,000 P1,320,00 P13,400,000

    Accounts payable P 800,000 P 250,000 P P 1,050,000


    Ordinary shares 2,500,000 600,000 600,000 2,500,000
    Share Premium 7,000,000 200,000 200,000 7,000,000
    Retained earnings ** 2,850,000 270,000 270,000 2,850,000
    Total P13,150,000 P1,320,000 P13,400,000

    *(2,500,000 -1,380,000-50,000)
    ** (2,900,000-50,000)

    LETTUCE COMPANY
    CONSOLIDATED STATEMET OF FINANCIAL POSITION
    JANUARY 1, 2020

    ASSETS LIABILITIES AND OWNERS EQUITY

    CASH P1,220,000 ACCOUNTS PAYABLE P1,050,000


    INVENTORY 1,000,000 ORDINARY SHARE 2,500,000
    BUILDINGS & EQUIPMENT 10,450,000 SHARE PREMIUM 7,000,000
    PATENTS 650,000 RETAINED EARNINGS 2,850,000
    GOODWILL 80,000
    TOTAL ASSETS 13,400,000 TOTAL LIAB & EQUITY P13,400,000

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