Business Combination - AFAR2

Discussion Problem 2. (Goodwill - Indirect Valuation) On December 31, 2015, ABC Corp. enters into a business combination by acquiring the assets and assumed the liabilities of XYZ Corporation in which the corporation will be dissolved. ABC Corp. Consideration transferred consists of the following: a. P25,000 unissued shares of its P10 par common stock, with a market value of P25 per share; b. P150,000 in long-term 8% notes payable and c. A contingent payment of P100,000 cash on January 1,2018 , if the average income of during the 2year period of 2016 - 2017 exceeds P250,000 per year. ABC Corp. estimates that there is a 30 percent chance or probability that the P100,000 payment will be required. In addition, ABC pays the following at the time of merger: - Finder's fee - P10,000 - Accounting Fees - P20,000 - Legal fees to arrange the business combination - P35,000 - Cost of printing and issuing stock certificates - P12,000 - Indirect costs of combining, including allocated overhead and executive salaries P23,000 Required; 1. Compute for the goodwill ( Show your solution). 2. Prepare the journal entries by ABC Corp. to record the acquisition 3. Prepare the balance sheet of ABC Corp. immediately after the acquisition. Discussion Problem 2. (Goodwill - Indirect Valuation) On December 31, 2015, ABC Corp. enters into a business combination by acquiring the assets and assumed the liabilities of XYZ Corporation in which the corporation will be dissolved. ABC Corp. Consideration transferred consists of the following: a. P25,000 unissued shares of its P10 par common stock, with a market value of P25 per share; b. P150,000 in long-term 8% notes payable and c. A contingent payment of P100,000 cash on January 1,2018 , if the average income of during the 2year period of 2016 - 2017 exceeds P250,000 per year. ABC Corp. estimates that there is a 30 percent chance or probability that the P100,000 payment will be required. In addition, ABC pays the following at the time of merger: - Finder's fee - P10,000 - Accounting Fees - P20,000 - Legal fees to arrange the business combination - P35,000 - Cost of printing and issuing stock certificates - P12,000 - Indirect costs of combining, including allocated overhead and executive salaries P23,000 Required; 1. Compute for the goodwill ( Show your solution). 2. Prepare the journal entries by ABC Corp. to record the acquisition 3. Prepare the balance sheet of ABC Corp. immediately after the acquisition