On January 1, 2011, Petron Corporation acquires the net assets of the Shell Corporation for P625,000 cash. Prior to the business combination, Shell Corporation has the following statement of financial position:

Shell Corporation

Statement of Financial Position

January 1, 2011

Assets				Liabilities and Equity
Current assets:			Current Liabilities				P 62,500
Accounts Receivable	P150,000		Shareholders’ equity:
Inventories	125,000	P275,000	Ordinary Share
Property, Plant, and			Capital, P10 par		P250,000
Equipment		350,000	Accumulated Profits		312,500		562,500
Total Assets		P625,000	Total Liabilities and Equity				P625,000

The carrying values of Shell’s identifiable net assets approximated their fair value, except for inventories and property, plant, and equipment, which have fair market values of P175,000 and P375,000 respectively. To effect the business combination, Petron paid its legal advisers P6,250 representing their professional fees.

Required:

1. Prepare journal entries to record the acquisition on the Petron Corporation’s books. Provide computations to support your entry.
2. Prepare journal entries to record the sale on the books of Shell Corporation and the subsequent total liquidation of the corporation.

Answer rating: 100% (QA)

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