F Company acquires assets and liabilities of M Company on January 1, 2019. To obtain these, F pays P400,000 and issues 10,000 shares of P20 par value common stock on this date. F's stock had a fair value of P36 per share on that date. F also pays P15,000 to a local investment firm for arranging the transaction. An additional P10,000 was paid by F in stock issuance costs.

In addition to the issuance of shares, F binds himself to pay additional consideration to pay 200,000 if M will achieve a certain condition (unspecified for simplicity). On acquisition date, it is estimated that there is a 60% chance of M complying with the condition. Therefore, the expected value of the consideration is 120,000.

The book value for both F and M as of January 1, 2019 follow. The fair value of each of F and M accounts is also included. In addition, M holds a fully amortized trademark that still retains 40,000 value.

F Company M Company

Book Value Book Value Fair Value

Cash 900,000 80,000 80,000

Receivables 480,000 180,000 160,000

Inventory 660,000 260,000 300,000

Land 300,000 120,000 130,000

Buildings (net) 1,200,000 220,000 280,000

Equipment (net) 360,000 100,000 75,000

Accounts Payable 480,000 60,000 60,000

Long term payables 1,140,000 340,000 300,000

Common stock 1,200,000 80,000

Retained Earnings 1,080,000 480,000

The combination is accounted for as an acquisition.

On February 1, 2020 facts that existed on acquisition date was discovered:

M Company's Inventory should be properly valued at 250,000

M Company's Land should be properly valued at 200,000

The contingent consideration has a fair value of 140,000

Required:

1. Apply the steps in acquisition method and compute:

a. Total consideration transferred

F Company acquires assets and liabilities of M Company on The combination is accounted for as an acquisition. January 1, 2019. To obtain these, F pays P400,000 and issues 10,000 shares of P20 par value common stock on this date. F's On February 1, 2020 facts that existed on acquisition date was stock had a fair value of P36 per share on that date. F also pays discovered: M Company's Inventory should be properly valued at 250,000 P15,000 to a local investment firm for arranging the transaction. M Company's Land should be properly valued at 200,000 An additional P10,000 was paid by F in stock issuance costs. The contingent consideration has a fair value of 140,000 In addition to the issuance of shares, F binds himself to pay additional consideration to pay 200,000 if M will achieve a certain Required: condition (unspecified for simplicity). On acquisition date, it is 1. Apply the steps in acquisition method and compute: estimated that there is a 60% chance of M complying with the a. Total consideration transferred condition. Therefore, the expected value of the consideration is b. Goodwill or Gain on bargain purchase 120,000. 2. Record the transactions for the acquisition. The book value for both F and Mas of January 1, 2019 follow, The 3. Present the combined financial statement of F and M immediately fair value of each of F and M accounts is also included. In addition, after the acquisition. M holds a fully amortized trademark that still retains 40,000 4. Prepare the adjustments on February 1, 2020. value. F M Company Company Book Book Value Fair Value Value Cash 900,000 80,000 80,000 Receivables 480,000 180,000 160,000 Inventory 660,000 260,000 300,000 Land 300,000 120,000 130,000 Buildings (net] 1,200,000 220,000 280,000 Equipment [net] 360,000 100,000 75,000 Accounts Payable 480,000 60,000 60,000 Long term | 1,140,000 340,000 300,000 payables Common stock 1,200,000 80,000 Retained Earnings 1,080,000 480,000