Question
Use the following information for the next 6 questions. Storm Company's balance sheet at January 2, 20x8 is as follows: DR (CR) Cash and receivables
Use the following information for the next 6 questions.
Storm Company's balance sheet at January 2, 20x8 is as follows:
| DR (CR) | |
| Cash and receivables | 200,000.00 |
| Inventories | 600,000.00 |
| PPE-net | 7,500,000.00 |
| Current liabilities | (400,000.00) |
| Long-term debt | (7,200,000.00) |
| Capital stock | (7,200.00) |
| Retained earnings | (25,000.00) |
| Accumulated OCI | (5,000.00) |
An analysis of Strom;s assets and liabilities reveals that book values of some reported items do not reflect market values at the date of acquisition:
- Inventories are overvalue by P200,000
- Property, plant and equipment is overvalued by P2,000,000
- Long-term debt is undervalued by P100,000
In addition the following items are not currently reported on Storm's balance sheet:
- Customer contracts, valued at P25,000
- Skilled work force, valued at P45,000
- In process research and development valued at P300,000
- Potential contracts with prospective customers, valued at P15,000
- Storm has not recorded expected future warranty liabilities with a present value of P10,000
On January 2, 20x8, Vine issues new stock with a market vale of P700,000 to acquire the assets and liabilities of Storm. Stock registration fees are P100,000 paid in cash. Consulting, accounting, and legal fees connected with the merger are P150,000, paid in cash. In addition, Vine enters into an earnings contingency agreement, whereby Vine will pay the former shareholders of Storm an additional amount if Storm's performance meets certain minimum levels. The present value of the contingency is estimated at P50,000.
1. Consideration transferred amounted to:
A. 0
B. 700,000
C. 50,000
D. 750,000
2. The market value of assets and liabilities (net assets) acquired amounted to
A. 1,285,000
B. 1,335,000
C. 1,575,000
D .1,345,000
3. The amount of goodwill in the books of Storm amounted to
A. 1,785,000
B. 2,035,000
C. 2,095,000
D. 0
4. The amount of goodwill in the balance sheet after business combination amounted to
A. 1,785,000
B. 0
C. 2,035,000
D. 2,095,000
5. Total liabilities after combination amounted to:
A. 7,810,000
B. 7,710,000
C. 0
D. 7,760,000
6. Total SHE after combination amounted to
A. 0
B. 725,000
C. 730,000
D. 700,000
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Cost management a strategic approach
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
5th edition
73526940, 978-0073526942
