Illustration 1. Share-for-share exchanges On January 1, 2022, Frank Co. and Richard, Inc. combined. As of this date, the fair values of  the assets, liabilities and equity of Frank and Richard before the business combination are as  follows:   On the negotiation for the business combination, the acquirer incurred the following transaction costs: P45,000.00 for legal fees; P 5,000.00 for due diligence cost and P 80,000.00  for the general admin cost and cost of maintaining an internal acquisition department. Case 2: before the transaction, Richard, Inc. have 20,000 outstanding shares. Richard issued

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Chapter1: Financial Statements And Business Decisions
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Illustration 1. Share-for-share exchanges
On January 1, 2022, Frank Co. and Richard, Inc. combined. As of this date, the fair values of 
the assets, liabilities and equity of Frank and Richard before the business combination are as 
follows:

 

On the negotiation for the business combination, the acquirer incurred the following
transaction costs: P45,000.00 for legal fees; P 5,000.00 for due diligence cost and P 80,000.00 
for the general admin cost and cost of maintaining an internal acquisition department.

Case 2: before the transaction, Richard, Inc. have 20,000 outstanding shares. Richard issued 
12,000 shares as consideration for a 60% interest in Frank. Richard’s shares currently sell P55 per 
share in the market, while Frank’s shares are quoted at P225 per share. Richard, Inc. elected 
to measure NCI at “proportionate share”.

With the stated facts, answer the following:

13.How much is the transaction costs incurred during the business combination?
a. P 150,000.00
b. P 75,000.00
c. P 130,000.00
d. P 125,000.00
14.How much is the par value of each Richard, Inc.’s share?
a. P 100
b. P 10
c. P 200
d. P 20
15.How much is the Consideration Transferred?
a. P 600,000.00
b. P 2,400,000.00
c. P 660,000.00
d. P 4,000,000.00

FRANK, CO.
RICHARD, INC.
Asset
Petty Cash Fund
Cash In bank
10,000.00
10,000.00
300,000.00
400,000.00
Receivables
490,000.00
250,000.00
Inventory
Building
200,000.00
100,000.00
750,000.00
600,000.00
Goodwill
250,000.00
140,000.00
Total Assets
2,000,000.00
1,500,000.00
Liability and Equity
Liabilit ies
750,000.00
350,000.00
Share Capital
700,000.00
400,000.00
Share Premium
300,000.00
430,000.00
Retained Earnings
250,000.00
320,000.00
Total Liability and Equity
2,000,000.00
1,500,000.00
Transcribed Image Text:FRANK, CO. RICHARD, INC. Asset Petty Cash Fund Cash In bank 10,000.00 10,000.00 300,000.00 400,000.00 Receivables 490,000.00 250,000.00 Inventory Building 200,000.00 100,000.00 750,000.00 600,000.00 Goodwill 250,000.00 140,000.00 Total Assets 2,000,000.00 1,500,000.00 Liability and Equity Liabilit ies 750,000.00 350,000.00 Share Capital 700,000.00 400,000.00 Share Premium 300,000.00 430,000.00 Retained Earnings 250,000.00 320,000.00 Total Liability and Equity 2,000,000.00 1,500,000.00
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