Company A Company B

Net Asset Contributions P400 000 P350 000

Add: Goodwill

Average/Annual Earnings P 80 000 P 70 000

Less: Normal Earnings

(10% on Net Asset) 40 000 35 000

Excess Earnings P 40 000 P 35 000

Divided by: Capitalized at 20% 20%

Goodwill P 200 000(c) P 175 000

Total Contribution (stock to be issued) P 400 000 P 600 000(c)

42. AB Corporation was merged into CD Corporation in a combination properly accounted for as
acquisition of interests. Their balance sheets before the combination are as follows:

AB Corp.

Current Assets................................................................ P 8,352,950

Plant and Equipment,net................................................ 6,450,700

Patents............................................................................ -

Total Assets.................................................................... P 14,803,650

Liabilities....................................................................... P 5,713,650

Capital Stock,par P100.................................................. 4,600,000

Additional paid-in capital.............................................. 950,000

Retained Earnings.......................................................... 3,540,000

Total Liabilities and Equity........................................P14,803,650

CD Corp.

Current Assets............................................................... .P 7,505,000

Plant and Equipment,net............................................... 3,130,450

Patents........................................................................... 153,800

Total Assets....................................................................P10,789,250

Liabilities.......................................................................P 939,000

Capital stock,par P100.................................................... 3,400,000

Additional paid-in capital............................................... 950,000

Retained Earnings........................................................... 5,500,250

Total Liabilities and Equity........................................ PP10,789,250

Per-independent appraiser’s report, the fair market value of CD’s current assets is P7,808,000; plant
and eqipment is P3,452,000; and patents P286,900. Liabilities of CD Corporation are properly valued. AB
Corporation purchases the net assets of CD Corporation for P10,607,900. How should the difference
between the book value of CD Corporation’s net assets and the consideration paid by AB Corporation be
considered?

A. Goodwill: P 286,900; Increase in Assets: P 757650

B. Goodwill: P 286,900; Increase in Assets: P 303,000

C. Goodwill: P 0; Increase in Assets: P 303,000

D. Goodwill: P 0; Increase in Assets: P 757,650

Answer: D

Consideration Transferred.................................................................................................P10,607,900

Less: Market value of net assets acquired, excluding GW:

Current Assets..........................................................P7,808,000
 Plant and Equipment............................................... 3,452,000

Patents...................................................................... 286,900

Liabilities................................................................. ( 939,000) 10,607,900

Goodwill............................................................................ P -0- (D)

Current Assets Plant and Equipment Patents

Book value P 7,505,000 P 3,130,450 P 153,800

Fair Value 7,808,000 3,452,000 286,900

Increase(Decrease) P 303,000 P 321,550 P 133,100

in assets

Current Assets P 303,000

Plant and Equipment 321,550

Patents 133,100

Increase in Assets P 757,650 (D)

43.Companies XX, YY, and ZZ decide to consolidate. The parties to a consolidation have the following
data:

Net Assets Average annual earnings

XX Co...................... P 6,800,000 P 680,000

YY Co. .................... 3,000,000 400,000

ZZ Co. .................... 10,200,000 920,000

The parties collectively agreed that the new corporation, RR Co. Will issue a single class of stock based
on the earnings ratio. What is the stock distribution ratio to companies XX, YY,and ZZ respectively?

A. 34:15:51

B. 33:15:52

C. 34:20:46

D. 33:21:46

Answer: C