Question

In: Accounting

The following is a summary of the statement of financial position of Stratification Company showing data...

The following is a summary of the statement of financial position of Stratification Company showing data regarding the carrying values and fair values as of December 31, 2011:

Statement of Financial Position Item

Book Value

Fair Value

Cash

P 70,000

P 70,000

Trade and other Receivables

125,000

125,000

Merchandise Inventory

80,000

140,000

Land

62,500

90,500

Buildings and Machinery

500,000

443,250

Accumulated Depreciation

(187,500)

Total Assets

P650,000

P868,750

Trade and other Payables

P 12,500

P 12,500

Bonds Payable

200,000

180,000

Ordinary Share Capital (P5 par value)

187,500

Share Premium

87,500

Accumulated Profits

162,500

Total Liabilities and Equities

P650,000

On January 1, 2012, Permutation Corporation entered into a business combination agreement by issuing 15,000 shares of its P10 par value ordinary share capital in exchange for the net assets of Stratification Company. As of this date, the shares of Stratification were selling at P18 per share while that of the Permutation were selling at P50 per share.

Permutation Corporation in carrying out the business combination agreement incurred the following additional cash payments:

                  Consultancy fee paid to broker that located Stratification           P 12,500

                  Legal fee for stock issued by Permutation                                         3,750

                  Share issue cost of new shares of Permutation                                   6,250

                  General and administrative expenses                                               11,250

                  Cost of SEC registration of Permutation shares                                 1,250

Required:

Prepare all indicated entries to record the acquisition on the books of Permutation Corporation.

Solutions

Expert Solution

Calculation of Purchase Consideration:
Issue of Ordinary Share of P10 each at P50 each = 15000 x 50 = P 750,000

Consideration consists of:
Share Capital: 15000 x 10 = P 150,000
Share Premium: 15000 x 40 = P 600,000


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