Question

On January 1, 2011, Petron Corporation acquires the net assets of the Shell Corporation for P625,000...

On January 1, 2011, Petron Corporation acquires the net assets of the Shell Corporation for P625,000 cash. Prior to the business combination, Shell Corporation has the following statement of financial position:

Shell Corporation

Statement of Financial Position

January 1, 2011

Assets

Liabilities and Equity

Current assets:

Current Liabilities

P 62,500

   Accounts Receivable

P150,000

Shareholders’ equity:

   Inventories

125,000

P275,000

    Ordinary Share

Property, Plant, and

         Capital, P10 par

P250,000

   Equipment

350,000

    Accumulated Profits

312,500

562,500

Total Assets

P625,000

Total Liabilities and

Equity

P625,000

The carrying values of Shell’s identifiable net assets approximated their fair value, except for inventories and property, plant, and equipment, which have fair market values of P175,000 and P375,000 respectively. To effect the business combination, Petron paid its legal advisers P6,250 representing their professional fees.

Required:

  1. Prepare journal entries to record the acquisition on the Petron Corporation’s books. Provide computations to support your entry.
  2. Prepare journal entries to record the sale on the books of Shell Corporation and the subsequent total liquidation of the corporation.

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