ANSWER ONLY.ACCOUNTING FOR BUSINESS COMBINATION

Companies A and B decide to consolidate. Asset and estimated annual earnings contributions are as follows:

	Co. A	Co. B	Total
Net Asset Contribution	P300,000	P400,000	P700,000
Estimated Annual Earnings Contribution	50,000	80,000	130,000

Shareholders of the two companies agree that a single class of shares be issued, that their contributions be measured by net assets plus allowances for goodwill, and that 10% be considered as a normal rate of return. Earnings in excess of the normal rate of return shall be capitalized at 20% in calculating goodwill. It was also agreed that the authorized capital stock of the new corporation shall be 20,000 shares with a par value of P100 per share.

The amount of goodwill credited to Co. A, and the total contribution of Co. B (net assets plus goodwill) is:

a. P100,000; P400,000

b. P100,000; P600,000

c. P150,000; P500,000

d. P200,000, P600,000