BA 118.

2 Business Combinations_13 Feb 2017_adeveyra

Bigtime Industries Inc, entered into a business combination agreement with Hydrolized Chemical
Corporation (HCC) to ensure an uninterrupted supply of key raw materials and to realize certain
economies from combining the operating processes and the marketing efforts of the two companies.
Under the terms of the agreement, Bigtime issued 180,000 shares of its P1 par common stock in exchange
for all of HCC's assets and liabilities. An additional 20,000 shares will be issued if Bigtime's share price
goes up by at least 20% after the combination. Bigtime paid for ₱135,000 of costs directly and indirectly
related to closing the business combination deal. ₱42,000 was paid for the registration and issuance of
shares. HCC was liquidated and shares were distributed to its shareholders. As of the date of combination,
Bigtime's ordinary shares were valued at 14x its par while HCC's shares are valued at ₱9 per share (par is
₱5 per share). HCC's treasury shares (1,000 shares) were originally issued at ₱8 per share and were
reacquired at ₱12 per share.

Immediately prior to the combination, Bigtime's and HCC's balance sheet appeared as follows, with fair
value also indicated for that of HCC:

Bigtime HCC
Book Value Fair Value
Cash 5,205,000 28,000 28,000
AR 525,000 258,000 251,500
Allowance:bad debts (26,200) (6,500)
Inventory 425,800 381,000 395,000
Long-term investment 455,600 280,000 238,000
Plant & equipment 8,525,000 2,425,000 2,500,000
Accum. Dep. (1,250,000) (614,000)
Land 5,250,000 55,000 100,000
Patents 1,250,000 125,000 500,000
Special licenses 525,000 95,800 100,000
- 20,885,200 3,027,300
Current payables 1,250,000 237,300 232,200
Mortgage payable 2,350,000 500,000 520,000
Debentures payable 5,250,000 1,000,000 950,000
Discount on debentures (125,000) (40,000)
8,725,000 1,697,300
Ordinary shares 8,500,000 600,000
APIC- ordinary shares 1,280,000 500,000
APIC- retirement of preferred shares 22,000
Retained earnings 2,380,200 220,000
Treasury stock (ordinary) (12,000)
20,885,200 3,027,300

Required:
a. Prepare one journal entry to record the business combination in the books of Bigtime.
b. Prepare one journal entry in HCC’s books to record the transfer of net assets and another entry to
record the distribution to stockholders of stocks received from Bigtime.
c. Compute for the combined total assets after the combination.
d. Compute for the total shareholders' equity of the newly combined entity.