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Sample Problem

On January 1, 2020, Lettuce Co. acquired Spinach Corp. for P1,380,000. Lettuce recorded the acquisition by debiting assets and crediting cash. Spinach's books were closed by debiting cash and crediting assets, with the difference credited to gain on sale. Lettuce's balance sheet showed increased assets and no change in equity from the acquisition.

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Zaldy Magante Malasaga
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188 views2 pages

Sample Problem

On January 1, 2020, Lettuce Co. acquired Spinach Corp. for P1,380,000. Lettuce recorded the acquisition by debiting assets and crediting cash. Spinach's books were closed by debiting cash and crediting assets, with the difference credited to gain on sale. Lettuce's balance sheet showed increased assets and no change in equity from the acquisition.

Uploaded by

Zaldy Magante Malasaga
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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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.
REQUIREMENT NO. 1
BOOK OF LETTUCE

(1) CASH 150,000 SUPPORTING COMPUTATION


INVENTORY 500,000 CONSIDERATION GIVEN P1,380,000
BLDNGS & EQMNT 750,000 FV OF NET ASSETS (1,550,00-250,000) 1,300,000
PATENT 150,000 GOODWILL P 80,000
GOODWILL 80,000
ACCOUNTS PAYABLE 250,000
CASH 1,380,000

(2) RETAINED EARNINGS 50,000


CASH 50,000

BOOK OF SPINACH (TO CLOSE THE BOOKS)

(1) CASH 1,380,000


A/P 250,000
CASH 150,000
INVENTORY 420,000
BLDNG & EQPMNT 600,000
PATENT 150,000
GAIN ON SALE 310,000

(2) OS 600,000
SHARE PREMIUM 200,000
RE 270,000
GAIN ON SALE 310,000
CASH 1,380,000

REQUIREMENT NO. 2

BOOK OF LETTUCE

(1) INVESTMENT IN SPINACH CORP. 1,380,000


CASH 1,380,000 SUPPORTING COMPUTATION
CONSIDERATION GIVEN P1,380,000
FV OF NET ASSETS (1,550,00-250,000) 1,300,000
GOODWILL P 80,000

(2) RETAINED EARNINGS 50,000


CASH 50,000

ELIMINATION ENTRY
1. INVENTORY 80,000
BLDNG & EQPMNT 150,000
GOODWILL 80,000
OS 600,000
SHARE PREMIUM 200,000
RETAINED EARNINGS 270,000
INVESTMENT IN SPINACH 1,380,000

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