ADVANCED ACCOUNTING 2 PRELIMS 1

LOLO COMPANY acquires the NET ASSETS of LOLA COMPANY in which Lola is dissolved. The assets and liabilities of Lolo and
Lola on January 2, 2019, the date of the acquisition follow:

LOLO LOLA
BOOK BOOK FMV
Cash 600,000 150,000 150,000
Net receivables 100,000 150,000 140,000
Inventories 120,000 200,000 250,000
Land 370,000 50,000 100,000
Buildings, net 760,000 300,000 500,000
Equipment, net 150,000 250,000 350,000
Patents 0 0 50,000
Total assets 2,100,000 1,100,000 1,540,000

Accounts payable 100,000 60,000 60,000

Notes payable 0 150,000 150,000
Share capital, P 10, par 1,500,000 500,000
Share premium 300,000 200,000
Retained earnings 200,000 90,000
Total equities 2,100,000 1,000,000 210,000

CASE 1 LOLO COMPANY pays P 400,000 Cash and issues 50,000 shares of its P 10 par Common with a Market Value of P 20/sh
for the NET ASSETS of LOLA COMPANY. Lolo also paid P 30,000 costs directly attributable to the business combi-
nation and P 15,000 for the registration of the stocks issued.;

1 Acquisition cost:
Purchase price (cash) 400,000
Purchase price (common shares): 50000 shares x 20 1,000,000
Total 1,400,000

2 Less: Fair value of net identifiable assets acquired

Cash 150,000
Net receivables 140,000
Inventories 250,000
Land 100,000
Buildings-net 500,000
Equipment-net 350,000
Patents 50,000
Accounts payable (60,000)
Notes payable (150,000) 1,330,000
Goodwill 70,000

3 Entries recorded by Lolo Co. upon acquistion:

Cash 150,000
Net receivables 140,000
Inventories 250,000
Land 100,000
Buildings-net 500,000
Equipment-net 350,000
Patents 50,000
Goodwill 70,000
Accounts payable 60,000
Notes payable 150,000
Capital Stock 500,000
Additional paid in capital 500,000
Cash (purchase price) 400,000
 Acquisition-related expenses 30,000
Cash 30,000

Paid-in capital in excess par 15,000

Cash 15,000

4 LOLO COMPANY
BALANCE SHEET
As of January 2, 2019

ASSETS
Current Assets
Cash 305,000
Net receivables 240,000
Inventories 370,000

Non-current Assets
Land 470,000
Buildings-net 1,260,000
Equipment-net 500,000
Patents 50,000
Goodwill 70,000

TOTAL ASSETS 3,265,000

LIABILITIES
Current Liabilities
Accounts payable 160,000
Notes payable 150,000

EQUITY
Ordinary shares, P10 par 2,000,000
Share premium 785,000
Retained earnings 170,000

TOTAL LIABILITIES AND EQUITY 3,265,000

CASE 2 REFERRING TO CASE 1, except that LOLO COMPANY issues 50,000 shares of its P 10 par COMMON with a Market Value
of P 20/sh and also issued a 10% five-year Note Payable in the amount of P 250,000 for the NET ASSETS of Lola.
Lolo also paid costs indirectly related to the business combination and also paid P 15,000 for the registration
of the stocks issued;

1 Acquisition cost:
Purchase price (common shares): 50000 shares x 20 1,000,000
Notes payable 250,000
Total 1,250,000

2 Less: Fair value of net identifiable assets acquired

Cash 150,000
Net receivables 140,000
Inventories 250,000
Land 100,000
Buildings-net 500,000
Equipment-net 350,000
Patents 50,000
Accounts payable (60,000)
Notes payable (150,000) 1,330,000
Income from acquisition 80,000

3 Entries recorded by Lolo Co. upon acquistion:

Cash 150,000
Net receivables 140,000
Inventories 250,000
Land 100,000
Buildings-net 500,000
Equipment-net 350,000
Patents 50,000
Accounts payable 60,000
Notes payable 400,000
Capital Stock 500,000
Additional paid in capital 500,000
Income from acquisition 80,000
 Acquisition-related expenses 30,000
Cash 30,000

Paid-in capital in excess par 15,000

Cash 15,000

4 LOLO COMPANY
BALANCE SHEET
As of January 2, 2019

ASSETS
Current Assets
Cash 705,000
Net receivables 240,000
Inventories 370,000

Non-current Assets
Land 470,000
Buildings-net 1,260,000
Equipment-net 500,000
Patents 50,000

TOTAL ASSETS 3,595,000

LIABILITIES
Current Liabilities
Accounts payable 160,000
Notes payable 400,000

EQUITY
Ordinary shares, P10 par 2,000,000
Share premium 785,000
Retained earnings 250,000

TOTAL LIABILITIES AND EQUITY 3,595,000